What Costs Are Involved With the Use of a Credit Card?

Plastic money is a fast, convenient and hassle-free way to purchase groceries, shop online and pay bills. Credit cards makes buying easier and more secure. According to Curtis E. Arnold in the book "How You Can Profit from Credit Cards," there were approximately 1 billion credit cards in the United States in the year 2008 alone, with around five cards for each American. Credit card usage is linked with various costs--besides those associated with the cost of goods purchased--and many users find themselves plagued with excessive credit card payments that put a considerable dent in earnings.

Interest

Credit cards issued by companies have different interest rates---the primary means by which the credit card issuing company generates revenue. Credit cards offered by the same financial institution can also differ wildly in interest rates, depending on the services offered and the functions of a particular credit card. According to Don Chambers in the book "Money Basics for Young Adults," interest rates typically fall into four main categories: teaser rate, never late and always paid in full rate, never late but minimum paid rate and once late on a minimum payment rate. The teaser rate usually ranges between 7 percent and 14 percent, and lasts for six months from the time of purchase of the credit card, after which it changes to the never late and always paid in full rate--between 14 percent and 18 percent. The interest rate on never late but minimum paid rate ranges 18 percent to 22 percent and that on the once late ranges between 22 percent and 29 percent.

Fees

Credit cards are associated with numerous fees---some known and many hidden. Some credit card companies charge monthly fees while others charge annual fees. Typical fees include application fees, cash advance fees, transaction fees, late payment fees, balance transfer fees, finance charge, penalty fees, over-the-limit fees and annual fees. Some credit card companies also provide fee-charged overdraft protection, which can cost as much as $30 every time a customer applies for overdraft.

Annual Percentage Rate

The APR reflects the total of all the charges, fees and the interest rate to be paid on a particular credit card. It is defined as the true or effective interest rate being charged, according to Robert A. Brechner in the book "Contemporary Mathematics for Business and Consumers."