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If you carry a balance on a credit card, try to avoid using that card for cash advances. Not only do cash advance APRs usually run much higher than standard purchases APRs--typically over 20%--but you will have to pay off your lower-APR interest first, before you can pay off your higher-APR interest.

Suze Orman, Yahoo Finance

Credit Cards

In most cases, a credit card account is an unsecured line of credit in which the balance can fluctuate, depending on what is charged and paid toward that account each month. Although having one or more credit cards can be useful, it’s tempting to make impulse purchases when you can defer paying for items. Even small purchases can start to add up before you know it. When evaluating credit cards, here are some things to keep in mind:

Avoid ‘Universal Default’

In addition to introductory rates that increase after an initial period, be aware that your card issuer may be able to raise your rates at any time without notice if you are late on any bill, not just your credit card bill. This right, reserved by the card issuer, is known as ‘universal default.’ It can be found in the fine print of most credit card agreements. It says, if you miss paying, or are late on, any bill, then you can be considered a greater credit risk and should be charged accordingly. The lesson here is: always be sure to pay not only your credit card bill, but all of your bills on time. In addition to higher rates, there is usually a penalty associated with late payment of your card bill. These fees often run around $30, but can run as high as $50.

APR – One factor to be aware of is whether the APR is fixed or variable. Variable APRs are generally tied to an economic index, such as the prime interest rate. If the prime rate goes up, your APR goes up. Some cards offer introductory APRs that start low then go up after a few months, which is something you may want to avoid if you plan to pay off a balance over time.

Grace period – A grace period is the number of days you have to pay your bill in full for purchases without triggering a finance charge. Most cards offer a grace period of 20 to 25 days1 which, if you pay your bill before the due date and in full each month, can act effectively as an interest-free loan. However, if you are late on a payment or if you do not pay your bill in full, on most cards the grace period goes away and interest is charged from the date the purchase was made. It’s another good reason to always pay on time.

Annual fees – Some cards may charge you an annual fee. Those that do often run between $25 to $50, but cards marketed to consumers with poor credit can have fees that can run much higher.2 If you plan to use your card a lot in order to, for instance, collect frequent flier miles or merchandise points, then an annual fee may be worthwhile. Otherwise, you may want to look for a card that doesn’t charge an annual fee.

Credit limits – Be aware of what your card’s credit limit is and don’t go over it. You will be charged a penalty fee, and in all likelihood, your APR will go up. It may also lower your credit score. Therefore, it is ideal to keep your balance well below your limit. If you’re near your card’s limit, you may want to consider spreading that balance out among more than one card.

Cash advances – APRs for cash advances are higher than for regular purchases, which are  typically over 20%.3 Also, you are only allowed to pay off these balances after you’ve already paid off your regular purchase balances. If your overall balance is high, you may be paying on this higher-interest part of your debt for a long time.

Use the Credit Comparison Tool to see this type of credit in action.
1. American Express
2. Federal Trade Commission
3. Suze Orman, Yahoo Finance