As you consider applying for new credit, however, and receive so many different offers with rates contingent on various factors, the task of sorting out which offer is really best for you can be daunting. To avoid overextending yourself, it is important to consider all of the terms of each agreement and compare these terms to your individual spending and payment patterns. Many consumers are tempted to sift through the offers, finding the one with the lowest annual percentage rate and no annual fee, and accept it as the best bargain. It is better to do a little research, though, and understand how the terms of the card will affect your personal finances, because the same offer that may be perfect for another consumer could end up costing you in the long run if it doesn’t suit your spending habits.

Things to Look for When Considering Credit Card Offers

Introductory Period

Sometimes we are attracted to offers with extremely low introductory annual percentage rates (APRs), but it is important to calculate just how much money these special-offer introductory rates will help us save, if any. An introductory rate, even one that is lower than any other card you own, only lasts a few months. It is important to weigh whether or not those few months of a lower rate really save you anything, when you compare them to the APR that you pay after the introductory period is over.

Are there extra fees for balance transfers?

If you have many different credit cards or even just a few cards maintaining higher balances due to higher interest rates, transferring all of the balances to the card with the lowest annual percentage rate (APR) can sometimes be the best way to decrease your payments. However, your interest and overall payment could end up increasing if you are not clear as to the conditions of the lower APR.

For instance, some cards offer great annual percentage rates, but the rate itself increases after the transfer. Rather than charging a flat fee for the balance transfer, the annual percentage rate for the transfer becomes double or triple what the APR in the initial offering would have been. This, of course, means that the actual amount of interest you pay increases. Other times, card companies will offer a low APR for the first few months of the balance transfer, and then raise it. In this case, you still may get a good deal if you are capable of paying off the entire balance of the transfer in the time allotted. Otherwise, it could be best to continue paying each debt individually, rather than paying a higher APR on a larger balance.

What are the Fees for Cash Withdrawals?

Do you often use your credit card to obtain cash at ATMs? If so, consider cash withdrawal fees before you choose a card. A low interest rate is great, but does the cost of withdrawing cash outweigh what you could potentially save with the lower interest rate? Sometimes it is better to go with one consistent, but slightly higher rate if it is going to save you from paying additional fees for a service that is important to you. On the other hand, if you don’t use your credit card for cash withdrawals, this fee will not affect you, and a low APR combined with high cash withdrawal fees could be a beneficial arrangement for you.

What is the Penalty for Late Payments?

Some card companies offer a fixed annual percentage rate that is exceptionally low, but the rate is conditional. Rather than charging a flat late fee, some companies have begun raising annual percentage rates, and sometimes this can occur after only one late payment or if the account goes over the limit. These offers may be ideal for someone who has never made a late payment in their life and always keeps a cushion of available credit. If, however, you occasionally send a payment a few days late, or you frequently approach your limits on cards, you would probably benefit more from a card with a marginally higher interest rate that is not subject to increase after one late payment.

How Are Finance Charges Calculated?

After you have decided which card is offering the lowest interest rate, you should then consider how the interest is calculated. Depending on when the card company begins counting the interest, your low annual percentage rate could cost more than the higher rate. Card companies usually use one of three methods to calculate your finance charges and interest rates.

• Average-daily-balance: This method is the most common. You are given credit for your payment from the day the credit-card issuer receives it, and the interest is calculated on the basis of the average amount owed during the previous month.
• Adjusted-balance: If you can find it, this less common method, which subtracts the payments and any credits from the balance, is a better deal that produces the lowest finance charges.
• Previous-balance or two-cycle billing: Some card companies offer exceptional annual percentage rates, but calculate interest on the balance owed at the end of the previous billing cycle. This method is the most expensive if you routinely carry a balance.