It’s a pretty common occurrence to receive credit card offers in the mail, packaged in shiny envelopes with messaging like, “Earn cash-back rewards on every purchase!” or “You’re pre-approved for this limited-time offer!”
Of course, credit card companies are hoping future cardholders will read these statements and feel a sense of urgency to take advantage of such deals. But before you sign up for any financial product, it’s important to know all the terms and conditions. This way, you’ll increase your chances of avoiding unpleasant surprises along the way.
Here are five things to look for in the fine print of credit card offers before signing up.
Introductory Rate
Credit card companies use introductory annual percentage rates (APR) as bait to entice potential customers. While it’s smart to compare offers available to you and take advantage of introductory offers, it’s also important to know when they end.
Introductory rates must legally last for at least six months, although many may last for a year or more. During this time, cardholders will see low or no interest applied to the balance they carry. To take full advantage of this feature, you’ll need to pay off your entire balance before your introductory period winds down — or else you’ll have to start paying the normal APR, which can be closer to 15 or 20 percent. What’s more, in some cases, the interest applied can be retroactive all the way back to when the account was opened.
Penalty APR Rates
Missing two or more payments can trigger a higher penalty APR for a certain period of time. As U.S. News & World Report outlines, it’s pretty typical to see a penalty APR somewhere around 29.99 percent — which is why it’s so important to read the terms of a credit card agreement before signing up. Not every card carries a penalty APR, and those that do vary in length and percentage.
High penalty APR rates are one reason people can easily find themselves stuck in credit card debt for a long, long time — even if they stop racking up new charges. As this Freedom Debt Relief review notes, one consumer writes that “it would take 30 years to pay off the credit cards” without intervention in the form of debt settlement.
Being aware of high interest rates and the exponential nature of credit card interest before accepting an offer can help you avoid becoming overwhelmed by ever-growing APR charges.
Balance Transfer APR and Fees
Transferring the balance from a high-interest card to a special balance transfer card can help cardholders get a handle on interest. But this solution is not the same as waving a magic wand and making your debt disappear. You’ll have to pay a fee per transfer — usually between three and five percent of the total balance — and that special APR offer will jump back up after the introductory period ends.
Annual Fees
If the perks of a given credit card seem almost too good to be true, there may be an annual fee associated with the privilege of opening the account. Figure out exactly how much you’ll have to pay each year just to carry the card before signing up, then compare it against the potential value of the benefits you could gain from the card — like cash-back rewards, travel miles, etc. You should proceed only if the benefits outweigh the costs. Otherwise, it’ll be more worth your while to find a card without such an associated fee.
Rewards/Points Terms
It’s smart to evaluate credit card offers from the angle of, “What’s in it for me?”
Understand exactly what it will take to earn rewards, perks and points — and if/when they’ll expire. After all, the last thing you want to do is miss out on these benefits due to a technicality. Many offers require you to spend a certain amount within a certain timeframe to qualify, so make sure you have a plan to hit that threshold and pay down the balance in a timely manner.
The fine print contains all the information you need to make informed decisions about credit cards. Taking the time to read through all the terms and conditions, especially as they pertain to APR and fees, will help you avoid unpleasant surprises down the line.
