Sorting Through Fees and Interest Rates

Posted by: Henry B. | Apr 03,2008


If you’re applying for a new credit card, you’re probably knee deep in sifting through  credit card fees, interest rates, and cash back programs.  It can get pretty complicated.  Here’s three cards you might be looking at:

1. A card that has a low interest rate, but it charges higher fees annually and for different services.  
2. Another card that has a higher interest rate, but limited fees.  
3. Yet another card that charges a high interest rate and fees, but it has a generous cash back program that will offset what is lost through interest. 

So which card do you choose?  It’s a tough call, but it depends in part on how you use the card.  If you’re good about paying off the balance every month, then number three would be best: you won’t bear the brunt of interest while still gaining cash back rewards.  

However, for most people this is a pipe dream.  The majority of people do not pay off their credit card balance every month but instead carry a balance.  This means your monthly interest rate is much more important.  The amount you pay on interest will far outweigh what you pay in an annual fee.  While a $95 annual fee is on the high end for credit cards, chances are you’ll spend much more than this in interest.  In addition, other high-fee cards only enact those fees if you do something wrong: pay late, go over the limit, etc.  So long as you’re responsible with your card, these fees won’t go into effect.  

So I would say that fees should not be your primary concern.  The ideal situation is to find a card with a healthy rewards program with an interest rate between 10 and 16 percent – that’s a good APR without a rewards program.  Overall, I’d look at the APR before looking at these other issues and then comparing what different credit cards offer in that general range.

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