Cheap Credit Cards - Are They a Myth?

 Cheap credit cards come in many varieties.  In addition, there are many factors a consumer needs to take into consideration when determining whether or not a credit card is truly cheap.

 

The first factor most people consider when looking for cheap credit cards is the card's Annual Percentage Rate (APR).  The APR determines the amount of finance charges that will be added to the account if the balance is not paid in full at the end of each billing cycle.  Therefore, the lower the APR, the less finance charges the cardholder will have to pay.

 

When comparing low interest credit cards, it is also important for the cardholder to look at how finance charges are determined.  Most credit cards use the Average Daily Balance method.  Other credit cards, however, use the Two Cycles Average Daily Balance method.  With this method, finance charges are determined at two different times during the billing cycle.  For those that carry a balance on their credit card from month to month, the Two Cycles Average Daily Balance method is more expensive.  Therefore, a low interest credit card may not actually be the least expensive card to use if it uses the Two Cycles Average Daily Balance method.

 

Some cheap credit cards have an annual fee in exchange for offering a lower interest rate.  Depending on the interest rate, this annual fee just might be worth paying.  In this case, it is necessary for the cardholder to be aware of his or her spending habits.  In this way, the cardholder can determine whether or not the money saved with the low interest rate will pay for the annual fee.  If the savings gained by the lowered APR will not pay for the annual fee, it is not worth paying to have membership to the card.

 

The grace period associated with a cheap credit card is also an important consideration.  The grace period is the number of days the cardholder has after making a purchase before finance charges are assessed to the card.  Twenty-day grace periods are common in the credit industry.  The longer the grace period, the less money the cardholder will ultimately pay in finance charges.  A cheap credit card with a low interest rate is not worth it if the finance charges begin to apply immediately after the purchase.  The money saved by a low interest rate will soon be lost as finance charges build each day.

 

Some cheap credit cards even offer reward programs.  Generally, however, low interest credit cards that also have a reward program are reserved for those that have good or excellent credit and will typically have an annual fee.

 

Even those reward credit cards that do not necessarily have a low interest rate can be considered to be cheap cards, mainly because the value of the rewards earned can be greater than the money spent on annual fees or finance charges.  Those that pay their credit card balance in full at the end of each billing cycle, for example, may not be so concerned about the interest rate of the credit card.  In this case, cheap credit cards would be those that offer discounts or special reward program that make the credit card pay for itself. 

 

In general, credit cards come with a number of perks.  These benefits can include purchase protection, extended warranties, roadside assistance, and travel insurance.  When sorting through cheap credit cards, consumers also need to take these benefits into consideration.  Those that will never utilize these perks will probably just be concerned with finding a low interest credit card with no annual fee.  For others, however, it might be a better idea to pay a little more in order to gain the added perks.  Similarly, if the consumer has several cheap credit cards with the same available interest rate to choose from, it only makes sense to go with the one that offers the greatest number of added benefits or that has benefits most meaningful to the person's lifestyle.