I'm looking for a credit card that I plan to use on special occasions and pay off the balance monthly. What card is the best choice for avoiding hidden fees and clauses?
If you're planning to pay off the balance every month, you should be less concerned about the interest rate and more concerned about the grace period before they start charging you interest on your purchases.
Credit card agreements aren't written in stone. Variable rates fluctuate with changes in the Fed Funds rate, but so can rates on a fixed-rate card. The card companies will change terms as needed to remain competitive with other credit card issuers. If you don't like how a credit card issuer has changed the terms on your card, vote with your feet and find a new card to carry. You can shop for a new card on this site. Good luck!
How does two-cycle credit card billing affect the cost of credit?
With two-cycle billing, the average daily balance used to calculate interest charges is calculated from two billing cycles rather than one. This approach to calculating interest effectively wipes out the grace period for customers who carry a balance. Two-cycle billing is expensive for people who only sometimes carry balances. (Check out our glossary of credit card terms.)
You'll be paying interest on the average of the two cycles.
ExampleLet's say you transfer $5,000 to the two-cycle card and plan to pay down your outstanding balance by $500 a month. Your average balance for the first cycle is $5,000 and you owe $15.95 in interest, so you pay $515.95 and have a $4,500 outstanding balance.
At the end of the second billing cycle, the credit card issuer calculates interest due based on the average balance for the two periods, or $4,750, and your interest payment is $15.15. You've paid $31.10 in interest.
With a one-cycle card at 4.9 percent APR, you pay $19.95 in interest the first month and $17.96 in the second month, for a total of $37.91. The two-cycle card has saved you $6.81 over the two periods.
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