How Much Does Your Credit Card Really Cost You?

Millions of consumers have credit cards, and many pay annual fees or high interest rates that cost them a lot of money in the long run, often without their realizing it. Credit will almost always carry a cost, but you can save yourself a lot of money if you know how much it’ll ultimately cost you, and shop for a better deal.

It can be easy for consumers to figure out exactly what their credit card accounts are costing them every year, and all it takes is a little math and some projection. However, consumers who sit down to figure out how much their credit card costs them every year need to think about not only the rates and annual fees they pay, but also other factors that may similarly affect their bottom line every year.

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For instance, it can be easy to calculate how much an annual fee costs every year, but a bit more difficult to figure out how much an interest rate costs. That’s because it can fluctuate from one month to another, depending on repayment habits. However, taking the time to look at past repayment habits over a number of years — as long as consumers are saving their statements for long periods of time — might be helpful in predicting this because they might be able to spot times of year during which they tend to carry more of a balance, or months where they are effective in reducing it consistently. This might help them to guess at what future changes they might face, and perhaps even take steps to avoid the habits that lead to higher costs in the coming months.

Similarly, many consumers attempt to reduce the price they pay for credit cards by finding rewards cards that grant them cash back or points for every dollar they spend, but these can actually end up being more costly if the borrower isn’t careful. That’s because these cards traditionally come with interest rates and annual fees higher than those for traditional accounts. As a result, consumers should take a careful look at what their current spending habits earn them in points or cash back, and then use that information to figure out how much they’re truly paying for such an account. The costs might outweigh the benefits.

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In any case, if you find that your credit card costs too much every year either because of an annual fee or interest rate, it’s a good idea to look into new accounts that would reduce your costs, and save you more money over time.

Image: x-ray delta one, via Flickr