It may be cheaper to pay an annual fee
if the interest rate on your card is low enough. Annual fees generally range from $20 to $75. To decide, you need to calculate which is cheaper: a fee-based card with a low interest rate, or a no-fee card with a higher interest rate.
Let's look at two cards. The first card has a $25 annual fee and a simple interest rate of 13%. The second card has no annual fee and an interest rate of 15%. If you pay your balances in full every month, you pay no interest. If you are thrifty enough to have no monthly balances, the no-fee card is clearly the better deal.
However, if your average monthly balance
is $5,000, the no-fee card would cost you an extra $100 ($750 - $650) a year in interest:
There are other fees to watch for. Credit card companies routinely charge fees on cash advances
. These fees are usually imposed at the card's ceiling rate
. There is seldom, if ever, a grace period
on cash advances. This means you begin paying interest on those amounts immediately.
Card companies also charge hefty fees on any charges that temporarily exceed
the amount you are allowed to borrow. Like cash-advance fees, these are fees that you pay for the privilege of having access to credit that is more than your borrowing limit. These kinds of charges should be avoided, if at all possible.