by Moe Zilla

Created on: July 16, 2010   Last Updated: March 03, 2011

It's possible to get a very low interest rate if you carefully compare different credit card offers. But you have to understand all the terms of your credit card agreement, or you'll inevitably stumble your way into one of these hidden fees. For example, you always have to watch for the "second" interest rate that kicks in at the end of your introductory period. At that point the lowest interest rates are almost always replaced by much higher rates than you'd get with a normal credit card. And they'll often switch to that higher rate immediately if you're ever late with a payment.

There's a third way that your credit card can end up costing more than you expect. Some companies offer an introductory 0% rate after you've transferred a balance from another credit card. The catch is there's a "transfer fee" that's applied when you set up the card, and it's often at least 3% of your total balance. For a $3,000 balance, that's a $90 fee up front.

I once got a credit card with a 0% interest rate that came with an awful catch. If I missed even one payment, they'd hit me with a whopping 25% annual interest rate - and it wouldn't apply just to that month! They'd actually go back to every one of my past statements, and retroactively charge that same interest rate on the balance in each of those past months. Missing one payment would trigger a late penalty that totaled over $1,000 dollars. And yet I took this offer, because I knew I could set up an automatic payment plan, and that I'd never, ever have to miss one of those payments.

But there's often an additional "annual fee" charged to all cardholders. This is usually smaller than the interest payment, but if you pay your balance off at the end of every month - it's annoying to discover that there's still that once-a-year fee. Some credit cards also charge a separate annual fee if you're participating in a "rewards" program. The more you charge with the credit card, the more reward points you'll earn - but you'll also end up rewarding them back when you pay your annual fee! Having said that, it's usually possible to make a small profit from a good "rewards" program. Often the points can be redeemed for a second "gift" credit card that has a cash value much greater than the annual fee.

Some financial planners warn against using any credit cards, because they make it too easy to pile up debts. But it's usually possible to find a great rate and a reasonable program - if you're willing to shop around.

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