The True Price of Shopping with Credit


During the holiday season it may be tempting to tap into the credit cards you have, but beware. Buying with plastic can cost you little or plenty - depending on how you use it. Knowing the true price of credit before you charge can save countless dollars and hours of anxiety.

Be aware of your grace period, which is the time you have before interest is assessed. This is typically between 15 to 30 days. Some creditors only charge interest on carried-over balances, others on past debt plus current purchases (thereby eliminating a grace period). There is no grace period for cash advances - interest accumulates immediately, and in most cases you will also be charged a 2-3% service fee, making this a very costly form of credit.

The average credit card annual percentage rate (APR) is 14% – but make a late payment or two and it can skyrocket to the upper twenties. Though seductively low introductory and balance transfer rates exist, such deals expire quickly.

There are numerous fees to be aware of - and avoid. Some issuers charge annual, application, and processing fees. The result? You may owe hundreds of dollars before ever making a purchase. Creditors who charge such fees target an uninformed population, or those whose credit is already damaged.

Over-the-limit fees are another common penalty. If you are already teetering at your credit limit, one late fee can push you over, and you will be charged an additional $15 to $35 per month until you pay the balance down.

Understanding the true price of credit before making holiday purchases can help you make wise decisions. By keeping balances low, paying on time, and researching your credit options carefully, you can keep the costs - and aggravation - to a minimum and truly enjoy the holiday season!

Karl J Bernhard 
PFCU Financial Educator