What is an APR?

APR stands for Annual Percentage Rate, or the amount of interest charged by the credit card company for your purchases each year. To figure out how much interest your credit card company would charge you for your purchases is to divide your APR by 365. However, the amount in interest you end up paying if you fail to pay off your balance each month is much more because of the concept of compound interest. If you want to always avoid paying finance charges and not worry about your APR, simply pay off your balances in full, before the due date each month.

What is an introductory APR?

An introductory APR is a special, “teaser” APR designed to attract new credit card customers. You will often find introductory APRs last between 6 and 12 months. After that, the card’s default APR will set in. Beware of introductory APRs because they can give you a false sense of security that you have a card with a great APR. Although a credit card company may offer you a zero percent introductory rate, the default APR may be quite high. Therefore, it is important to pay close attention to the card’s default rate and not just the introductory rate.

Will my credit card’s APR ever change?

Perhaps. However, due to the CARD Act legislation, your credit card company must inform you of the change, in writing, 45 days in advance of the APR change. When applying for a credit card, look for one that has a “fixed” APR, not a “variable” one, as a variable APR will change according to the prime rate.

How important is my card’s APR?

Although most people look just at card’s APR, it is important to also look at other features of the credit card when determining whether the card is right for you. In short, thoroughly read the card’s terms and conditions so you can fully understand all features of the card, including the card’s APR.

You may think that your credit score is picture-perfect; after all, you have a few credit cards and you manage to pay on them every month. So, what’s the problem? The truth is that there may be things you aren’t doing that are putting a dent in your credit score:

1. You aren’t using your credit card – Many of us think that because we have a credit card we automatically have good credit, but this just isn’t true. An open credit card is a good first step, but in order to establish a solid credit history (and therefore bump up your credit score) you must spend on the card regularly. What many people don’t know is that simply making a purchase or two each month is enough to begin building a strong credit score.
2. You aren’t looking at your credit report – What you don’t know may hurt you, especially when it comes to your credit report. Any credit report could have a number of errors or discrepancies that can damage the best credit score. It is therefore important that you make a point of ordering a copy of your credit report at least once a year so you can review it carefully and check for any errors. Of course, if you spot anything that doesn’t look right, it is important to immediately contact the appropriate credit reporting agency and submit a request for an investigation.
3. You aren’t paying attention to your credit card’s due date – The only way to ensure a strong credit score is by paying your credit card on time, each and every month. Many people think that failing to pay their card on time every once and a while won’t harm their credit score, but the truth is that even one missed payment can put a dent in your credit score and open up the possibility of your credit card company raising your interest rate.
4. You aren’t paying down your credit card balance – Paying the minimum balance just doesn’t cut it when it comes to building a strong credit score. The credit reporting agencies see large credit card balances for extended periods as a red flag, as it often indicates you are spending beyond your means. Keep your spending in check and pay those credit card balances down every chance you get.

Although it always pays to thoroughly examine the terms and conditions of a store credit card, including the interest rate and related fees, there are ways to make a store credit card work for you.

In other words, although your favorite store credit card boasts an interest rate high enough to make you break out into a cold sweat, you may actually be able to beat the store at its own game. Here’s how:

• Pay off your balance each and every month, without fail. Using a store credit card can be quite convenient – that is, until you begin paying steep finance charges on your balance. You can avoid paying any fees or finance charges by simply paying off your store credit card before the due date each month.
• Take advantage of the store card’s initial discount. If the store offers you an attractive discount just by opening the account, by all means take advantage of it. However, once again, it is important to pay off your balance when the bill arrives. After all, paying interest on your purchase will likely negate any benefits you received from your initial discount.
• Take advantage of the member benefits of the card. Carefully read any correspondence you receive from your store so you know when to shop. Most store credit cards come with special discounts, coupons and shopping days for card members, so remember to pay attention to these offers so you can save the most money.
• Be aware of your shopping habits. If you tend to spend more because you have a store credit card in your back pocket, it may make more sense to pass on using a store credit card. It may also pay to shop first without your credit card and then return with your credit card once you have given some thought to what you need and what you can afford.

So, the question is: Should you always feel guilty when you carry a balance? Perhaps not.

Here are a few examples of times when it may make sense to carry a balance on your credit card:

1. When your credit card has a low, fixed rate – If you have a credit card with a low, fixed rate, or if your credit card offers convenience checks with a low, promotional rate, you may want to make a large purchase or two and take a few months to pay it off. This may make sense if your other loan or credit options feature higher interest rates. If you know you want to take a few months to pay off your credit card balance, just be sure to formulate a game plan for paying it off in a preferred time frame.
2. When you transfer balances with a low, promotional rate – If you have a number of credit cards or loans with high interest rates, you may find that transferring these loans to a credit card with a low, fixed interest rate is your best bet. Pay close attention to the balance transfer’s promotional period and formulate a game plan for paying off your balance during that time, as the card’s default percentage rate will likely kick in and you’ll find yourself with quickly mounting finance charges once again.
3. When you encounter unexpected expenses or a financial emergency – Credit cards serve many practical purposes, yet are also crucial if you find yourself in a financial emergency. From an inoperable vehicle to a broken furnace, emergency expenses catch us off guard; luckily, a credit card is the ideal financial tool to save us when we don’t have access to quick cash. It is quite reasonable to take a few months to pay off an emergency purchase because the card served a very useful purpose helping you out in a financial pinch.

• Always pay yourself first – Before you even touch your paycheck, pay yourself first. This means taking a percentage of your paycheck (aim for 10 percent) and putting it into a high-yield savings or money market account.  If you want to build a financial cushion in case of unemployment, disability or personal emergency, you will need to save a portion of your income, each and every paycheck, without fail. Many economists and financial experts recommend aiming to save at least six months of income in an easily accessible savings or money market account.
• Never carry a credit card balance – The number-one rule when it comes to credit cards and financial stability is to always pay off your balance. Credit cards are practical and convenient, and are often a useful way to build a great credit history. However, they can also be financial sink holes, plunging us into debt and creating a financial problem that magnifies if we can’t afford to pay more than the minimum balance. The easiest way to avoid financial trouble and to secure a healthy, financial future is to never spend more than you can afford to pay off each month.
• Be cautious about what you purchase on credit – There are a few things that may be purchased on credit, such as a car or a home; otherwise, wait until you have saved up to make other large purchases. Using credit to buy furniture, clothing and to take vacations is the quickest way to get in over your head in debt. A good rule of thumb is to only purchase within your means, and that may mean saving up for things you want most – not charging them for instant gratification.
• Always, always take advantage of an employer-based 401K plan – If your employer matches up to a certain percentage of your 401K contributions, then you must take advantage of it; otherwise you are essentially turning your back on free money.

Here are a few questions you should be asking yourself before applying for a new credit card:

• Will I use my credit card frequently throughout the month?

For customers who use their credit cards frequently throughout the month, either for business or personal expenses, it probably pays to use a rewards credit card. It is quite easy to begin racking up rewards points if you use the card frequently, even for smaller purchases, such as groceries and gas. The type of rewards customer you are, however, will depend on what you need or want. Remember: rewards credit cards can range from gas perks to airline perks, so take the time to examine which type of rewards credit card is best for you.

• Will I pay my balance off each month?

If you spend a lot, but you don’t pay off your balance each month when your bill arrives, it probably makes more sense to stick to a credit card with a low, competitive interest rate instead of rewards. This is because, although you may be earning rewards, they will be likely offset by the finance charges you will be paying on the card each month. Don’t forget, too, that some rewards cards come with higher interest rates to account for the card’s rewards, so if you are not paying off the balance of your credit card each month, you could be paying far more interest than you should.

• Will I use additional credit card features?

If you want to take advantage of some of the features found with new credit cards, such as online payments and fraud alerts, then you need to pay close attention to the features afforded with each credit card. In other words, take the time to read about all of the features that come along with a particular credit card.

You may be receiving more credit card offers than ever, and many of those offers may come with a balance transfer offer. Although most of these balance transfer offers are quite advantageous, there may be a few things to consider before accepting a credit card offer with one of these balance transfer offers. In particular, pay close attention to balance transfer fees, as they can be tricky and often difficult to understand. Here’s what you need to watch for:

• High balance transfer rates – Balance transfer rates can vary widely from one card to the next, and some creditors charge as much as three to five percent in the form of balance transfer fees. The amount you will pay will depend on the amount you are transferring, as the balance transfer fee is a percentage of the transferred balance. It is important to remember that, most of the time, these fees are not negotiable. Sometimes individuals with excellent credit that threaten to use another card to transfer balances may have luck when it comes to negotiating the balance transfer fee rate.
• Keep in mind that there are generally no limits on balance transfer fees, so if your balances are high, expect your balance transfer fee to be high, too, which may cancel out any advantage you may get from transferring your balances to another credit card with a lower interest rate. It may be in your best interest to do the math and determine if the balance transfer fee or the higher interest rate on the other card makes more financial sense.
• Don’t expect balance transfer rates to hang around very long. In fact, many creditors have cut these introductory periods quite dramatically, from 12 months just a year ago to little more than six to nine months these days. Pay close attention to the card’s default rate once the promotional period has ended, as it could be just as high – or higher – than the interest rates on your current credit cards, thereby leaving you in a worse position than when you started.

However, you may want to think twice about using your credit card in the following circumstances:

• If you’re close to your credit limit – One of the factors that credit reporting agencies consider when determining your credit score is the amount of available credit. Therefore, if you charge to the limit on your credit cards your available credit is diminished, which therefore lowers your credit score. It is always best to avoid carrying a balance of more than 30 percent of your credit limit to keep your credit score intact.
• When you receive notice that the interest rate on your credit card will increase – The new CARD Act requires creditors to give customers a 45-day notice on rate increases; however, your rate may actually increase just 14 days after you receive the notice. Instead of spending on your card, take this time to negotiate a lower rate with your credit card company or find another card with a more competitive rate.
• If you know you can’t realistically pay off the balance in a reasonable amount of time – The best case scenario, of course, is being able to pay your credit card balance in full when the statement arrives. However, if you have a game plan in place to pay off the credit card balance over the course of a few months then it is probably okay to use your credit card. The trouble comes when you begin making purchases without having a plan in place to pay them off. Think twice before making a purchase and ask yourself if you can realistically pay off the purchases in a reasonable time frame.
• When you are purchasing something from an unknown website – To play it safe, it is always best to stick to purchasing online items from trusted websites. It just doesn’t pay to risk your identity and credit card information paying for a purchase from a website of which are you unsure.

• Check out the offers you receive in the mail to see which one is best for you. Take into consideration the introductory interest rate, the interest rate once the introductory period has ended and the length of the introductory period. Don’t assume all balance transfer offers are the same. They differ quite a bit from card to card, so take the time to compare offers.
• Don’t just read what the creditor wants you to read. Instead, read the fine print. The credit card’s terms and conditions should be read and understood before you accept a credit card offer, so take the time to read and reread the fine print before taking the next balance transfer offer that comes your way.
• Don’t always assume the lower introductory rate is the best value. Instead, take all factors into consideration, including the length of the introductory rate, the rate once the intro rate has ended and the balance transfer fee. You may need to pull out the calculator to determine how much money you will save, what you will pay in balance transfer fees based on the amount transferred, and any other related fees.
• Once you have decided upon the credit card to complete your balance transfer, save yourself time by applying online. Don’t forget to gather your other credit card accounts that you want to transfer so you can be prepared to transfer the balances once you have been approved. Make sure you have all of the information necessary to handle these transfers, including the account numbers and your current balances.
• Some credit card balance transfers can take a couple weeks to happen, so if you have a credit card payment due soon, don’t neglect it, as you could risk late payment fees if your balance transfer doesn’t happen before the due date.

Let’s face it: the struggling economy has left many of us with too many bills and not enough cash. As a result, consumers have had to get creative, and that means doing the credit card shuffle.

Although you may think that you are preventing problems by shifting around balances and using one credit card to pay the bill of another credit card, the truth is that you may simply be delaying the inevitable and putting yourself into a situation that you may not be able to get out of.

Credit card use over the last few years, for many individuals, has gotten out of hand. Instead of making purchases and paying them off in a reasonable amount of time, many consumers found themselves using their credit cards to live beyond their means and pay for things that they had no way of realistically paying back in the short term.

As a result, many consumers are now in over their head in credit card debt and they are quickly running out of options.

Paying Credit Card Balances with other Credit Cards

It only makes sense that using one credit card to pay another credit card’s payment each month is a disaster in the making. If you have resorted to this action, then perhaps it’s time to realize that there are bigger problems at hand. If your debt is too much to handle it may be time to talk to a non-profit consumer credit counseling agency, as they may be able to help you identify your money mistakes and put you on a plan to begin paying off your debt.

Transferring Credit Card Balances

If you want to use one credit card to pay off another, make sure the balance transfer offer is attractive and make sure that the balance transfer fee is reasonable (three percent or less of your transferring balance). In addition, get a game plan in place for paying off your debt, and take measures to ensure that you don’t simply begin spending again on the card’s that you have transferred.