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Which credit card

Be very careful which credit card you choose to use, you could end up paying more than you need to. Some people will go for credit cards with up to 60 days interest free, believing this is a great deal, when in reality it couldn’t be further from the truth. If you have discipline and can pay off the balance before the days expire, great however if you can’t you will find more than likely you are paying a much higher interest rate than that on a card with out interest free days.

How a credit card charges interest can greatly differ from card to card. Unfortunately the consumer tends to compare cards based on the cards’ interest rate, many choosing to go with a card that offers the lowest interest rate under the assumption this would be a cheaper option. In reality they could end up paying a lot more, depending on how the lender calculates interest. Some lenders can charge up to 20% annually. However, this can actually be a cheaper card if the card has a 30 – 55 day interest free period and the consumer pays off the card in full.

In a report by Choice Magazine it was identified there are more than 10 different methods for calculating interest on credit cards. The average consumer finds if difficult to distinguish between methods. For example many cards calculate interest on late payments or payments not made in full. Some of the meanest methods to be aware of include:

• Charging interest on the outstanding balance based on the full purchase amount, regardless of whether some of the purchase was repaid on time.
• Where interest is calculated daily and is calculated back to the original purchase date, the day you actually made the purchase, not the statement date.
• If you are carry an unpaid debt from the previous month, some card providers will even deny the interest free period for new purchases placed on the card during the current month. Effectively interest is calculated on the total balance of the credit card.

Cards with interest free days tend to charge interest from the day you purchase your goods or services or from the statement date unless the whole amount is paid in full within the interest free period.”

For example, even though you have up to 55 days interest free, if you make a purchase on the day before your statement is due, your interest free period may not be 55 days from this date; it could be as little as 26 days, because 29 “interest free days” have already elapsed between the last and current statement dates with the remaining time left equating to 26 days.
 
Be careful! Take the time to work out how the potential credit card provider calculates interest on the card. It could make the difference between a cost effective option and a more, much more expensive card.

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