When approval feels like relief

When money is tight, a credit card offer can feel like a lifeline. Approval may offer reassurance, but it does not establish that the borrowing is affordable. Before accepting an offer, understand the interest rate, fees and repayment terms. A credit limit is borrowed money, not additional income.

Financial trouble can make it difficult to slow down and compare offers. Take time to read the terms before applying. A credit rating describes borrowing history; it does not measure your worth as a person.

What the interest rate means

APR stands for annual percentage rate. On a credit card, the purchase APR is the yearly interest rate used to calculate charges on purchase balances when interest applies. It is not a monthly rate. Fees can add to the cost separately, and purchases, balance transfers and cash advances may have different APRs. [4]

Credit standing and borrowing costs

The figures below show regular purchase rates, not introductory offers. The three category averages describe card offers in a marketplace survey; they are not guaranteed rates for individual applicants.

Make the cost visible

At the rates above, the fair-credit average costs about $41 more per month than the excellent-credit average on a $5,000 balance. If you paid $150 in the fair-credit illustration, roughly $112 would cover interest and only $38 would reduce the balance, before fees or new charges.

Read the terms before you accept

Regular purchase APR. Look beyond the opening offer. Confirm the rate that applies after any promotion and whether the rate is variable. Your credit profile and the card product both affect what you may be offered. [1, 4]

Promotional terms and fees. Check the expiration date and which transactions qualify. A 0% balance transfer can still have a transfer fee. For example, a 3% fee on $5,000 adds $150. Cash advances can carry separate rates and fees; check when interest begins. [4, 6]

Minimum payment and payoff estimate. The minimum is the amount required for that billing period. Paying only that amount can keep you in debt for years. Check the repayment information on your statement.

Estimates assume you do not add new purchases. [5]

When purchases can avoid interest

If your card provides a purchase grace period and you are not carrying a balance, paying the full statement balance by the due date generally avoids interest on new purchases. Paying the minimum does not accomplish this. Carrying a balance may cause you to lose the grace period, so new purchases can begin accruing interest.

Cash advances generally do not receive the same protection. [7]

A manageable plan when money is tight

1. Write down the facts. For each card, record the balance, purchase APR, minimum payment, due date and any promotion expiration date. Use your latest statements rather than your memory.

2. Prevent avoidable setbacks. Budget for required minimums and essential living costs. Use reminders or carefully managed autopay. If a payment is becoming unaffordable, contact the issuer early to ask about hardship options and their terms.

3. Direct extra money deliberately. After required minimums, putting extra money toward the highest-rate balance generally reduces interest fastest. A smallest-balance-first approach may help motivation, but can cost more interest. Choose a plan you can sustain and limit new charges while repaying.

4. Compare the full cost before moving debt. A transfer or consolidation only helps if the rate, fees and payment terms improve your situation. Plan for the end of promotional periods and avoid running the old balances back up.

One step today: Open your latest statement and find the purchase APR. Learning the price of your debt is the first step towards deciding what to do about it.