Four Types of Credit Cards to Avoid and Why

Choosing a credit card that is not at all suitable for your financial situation is an easy trap to fall into. After all, credit products with the least favorable terms require the most energetic marketing efforts to get them sold. It may only be a matter of time before you yield to temptation and agree to take on a new credit card that you will later regret using. What follows is a blunt examination of just a few different types of consumer credit cards that should be avoided and why.

Predatory Introductory Rate Cards
Consumers who find themselves attracted to low “teaser rates” on new credit products need to exercise caution and not let low introductory rates unduly influence them. The very worst of these cards charge an initial rate as low as 4 percent on new balances for the first six months. After that, regular interest rates kick in. These can be as high as 18 percent for people with good credit. This type of card gives credit card companies an opportunity to recoup money lost while charging only the introductory rate.

Secured Credit Cards with Preposterously High Fees
High fees are bad. When one is willing to back up their promise to pay with cold, hard cash, they ought to be treated better than a common “hard money” borrower. Secured cards have a place in the market. Folks with damaged credit deserve a chance to rebuild it with a disciplined approach to debt management. Secured credit cards allow people to do this while protecting the interests of lenders. With secured cards, the initial cash deposit becomes the borrower’s credit limit. In this way, everyone has an incentive to play by the rules. Industry research suggests that some secured card issuers charge annual fees as high as 75 dollars. This means that a secured card with a 300 dollar credit limit would be eaten up entirely by annual fees in just four years. All of this assumes that there are no other fees or interest owed.

High Unsecured Interest Rate Cards
During a time of historically low interest rates, it’s hard to imagine that there are still some banks out there marketing and issuing credit cards carrying an APR (annual percentage rate) approaching 30 percent. The method banks employ to get people into such cards is to offer them as an “alternative” to lower rate secured credit cards that require the consumer to make a hefty cash security deposit as collateral. The waiving of this security deposit is an enticement, and a well-above market interest rate is the penalty you would pay for accepting the terms of this card. Many consumers agree to accept these terms because they believe they can use the card while working to repair their credit, or save up to make the security deposit later.

No Grace Period Credit Cards
Cards such as these punish the thrifty. The industry average grace period one has to make a credit card payment before interest charges are incurred is 21 days from the time the consumer receives his bill. Sadly, not every credit card company works this way. The consumer who is stuck with a no grace period card starts to rack up interest charges the moment the cashier swipes their card. The typical credit cardholder saves a few hundred dollars every year when they use a card that features a reasonable grace period. Those not-so-lucky few who use alternative cards pay for everyone else’s free ride.

It would be great if every credit card offer came with a fair market interest rate and a reasonable figure in terms of user fees, but this is not the case. While there are some fairly good credit card deals out in the market (including alternative offerings), there are far too many that simply prey on those who are less than completely prudent when it comes to money management. To this end, it is critical for every consumer to read and understand the terms and conditions that come with any card offer they contemplate accepting.