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    Choosing the Right Credit Card

    There is no right or wrong answer to the question, “Is this the right card for me?” You need to understand the various features and benefits of the card, and then make a decision after comparing a few options. Here are some guidelines to help you through the process:

    Don't pick a card just because it offers a zero annual fee. Many unsecured credit cards still offer a zero annual fee these days. Banks understand that a “no annual fee” card is attractive to many consumers. This doesn't mean you should never consider a card because it comes with a fee – if the card comes with a substantially lower interest rate, that might justify paying the annual fee. Or, the perks and benefits that come with the card (such as airline frequent flier miles) might outweigh the downside of paying an annual fee.

    Understand all the fees that could be applied. Credit Card agreements will disclose the possible fees that could be charged to card holders:

    • Annual fee – The card's annual fee is simply the amount that is charged to you, as the cardholder, for using the card each year.
    • Cash advance fee - This fee is charged to the account when the card is used to process a cash advance (if the card has this feature included). The cash advance fee may be accessed either as a flat fee amount or as a percentage of the cash advance amount.
    • Balance-transfer fee – This is a fee that is charged if you are transferring a balance from one card to another --- often 3% of the transferred amount.
    • Late payment fee – This fee is fairly self-explanatory. You are charged a fee if your payment arrives after the invoice due date. Fees could be as high as $39-$49 per month.
    • Over-the-credit-limit fee – This is a penalty fee that is accessed when you make a purchase that goes above your current credit limit. Fees could be as high as $39-$49 per month.

    If you’re not going to pay off the balance in full each month, choose the card with the lowest annual interest rate. Don’t get distracted by offers for cash back or rewards. The amount you will pay in interest charges will exceed the value of the perks.

    Creditors will determine your interest rate AFTER you apply for the card. The rate will be based on your credit history. A solicitation in the mail to apply for a card is not a guarantee that you will receive a particular rate. Once you apply and the lender reviews your credit report, you may get approved for the card but at a higher interest rate than you thought. Finally, understand that your rate can change – credit cards are unsecured lines of credit, and creditors often use variable interest rates which adjust based on economic and market conditions.

    If you’re going to pay your balance in full each month, consider a card that offers something you really value. The interest rate here doesn’t matter, since you’ll be paying your balance off immediately. Cash-back options are an example.  Once you accrue a certain level of spending on the account, you become eligible to receive a cash-back “reward.” There are other perks such as travel rewards, frequent flier miles, roadside assistance, insurance, and “member-only” privileges that could be attractive to the card holder.

    Don't pick a credit card just because it offers great rewards or cash back. Credit cards that offer cash back or perks may sound great, but if rewards come with many strings attached, then it might not be worth it. If you aren't sure whether you'll pay the balance in full each month, a high APR may cost you more money than you save with the rewards. Also don't pick a credit card just because it has a low introductory or “teaser” rate. The introductory rates are only a fraction of the total time the average person retains a credit card.

    In general, opting for a credit card with a low APR is a good approach. If you are one of the 30 percent of Americans who pay their credit card balances in full each month, the interest rate is irrelevant to you, since almost all cards come with a grace period allowing a period of time to pay the balance in full without incurring interest fees. However, if you regularly carry a balance on your credit cards, the interest rate should always be a top consideration.

    You should shop around for the card that’s right for you. Talk to your bank or credit union, and understand their different card products. Use www.bankrate.com to compare the terms and rates from national lenders, and most importantly, always use the card wisely and within your spending means.

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