Pop Quiz.... Part 2

Question two of the last post was, “Do you know the interest rate of all your credit cards and Lines of Credit?”

Congratulations if you answered “yes”! These interest rates tell us which cards to get rid of, which to pay off first, and which to keep.

Interest on department store credit cards can run from 21-28%. Ouch!  If you have one, clear it off and get rid of it. Many stores have “interest free” offers, if an item is purchased using their credit card. This is only a benefit if there is no administration fee, and the balance is paid in full within the specified time. I recently bought an appliance this way.   When I asked about an administration fee for 12 months interest free, I was told it was one percent.  Not much, but still an additional charge.  There was no administration fee for three months interest free, and this is the offer I agreed to.  I paid off the account within the three months, and got rid of the card.

Bank credit cards range in interest from 9-19%.  Some have annual fees and some do not. The annual fee is worthwhile if it reduces the interest rate, but ideally - pay the account in full each month. I believe it is important to have a bank credit card - just use it wisely.

A Line of Credit (LOC) can be secured or unsecured, and can range in interest from prime to 8%. An unsecured LOC is a higher risk, and therefore has a higher interest rate. A LOC secured against your house can have a lower interest rate, but remember - every time the balance increases, the bank owns more of your house!

When using credit, ask, “What is it really costing me?”