Do you know your credit card cost of funds? Credit cards do not have to end up costing you the earth. So long as you can keep your spending under control, and are able to pay off your monthly bill in full each month, your credit card will probably cost you nothing.
Below you can find how your credit card companies arrange your bill payment and other charges and fees incurred if you don’t follow their arrangement.
How Issuers Calculate Your Credit Card Cost
Every purchase you make with your credit card is given an interest-free period of somewhere between fifty and sixty days. This is the time between when you make the transaction and when the purchases show up on your next monthly bill. So long as you pay for it on the first bill, there will be no interest or financing charge for the transaction.
However, if you do not manage to pay for the purchase on the first bill it shows up on, then you will start to incur interest and financing charges. On credit cards, interest is charged monthly, not annually.
Different Credit Card Cost Components
As well as interest and financing charges, credit cards can also end up costing you in other fees. Probably the most common charge people incur with credit cards is interest charges, when they become unable to repay the full balance in full each month and instead, allow the balance to carry over to the next month.
But late payment fees are another way that credit cards ending up costing people more than they had imagined. You will want to read the credit card agreement carefully to find out how much the penalty charges and fees will be if you fail to make all of your repayments on time.
Some credit cards will even alter the interest rate you are charged if you fail to make payments. For example, if you are on a credit card that charges ten per cent annual percentage rate, and fail to repay, the terms of your agreement may offer the interest rate to be increased to a higher rate, such as twenty-five percent.
Another way credit cards can end up charging you more than you expected is if you travel abroad. One of the main conveniences of a credit card is that you can use it abroad when you travel. However, many credit card companies charge high loading fees for purchases you make while abroad. Not only will they charge you their currency exchange fees, but they will also charge you a percentage of the credit card cost of transaction as another fee.
What to Do Next?
Now that you know all cost components of your credit cards, make sure you start using your cards wisely.
Start converting your debts into wealth here –> How to use credit cards to your advantage