Managing Your Credit Cards

ARE YOUR credit cards the worst investments you have going these days?

According to a SmartMoney.com poll, about 50% of readers are using cards that charge more than 12% interest on outstanding balances. And 17.5% are paying 18% or more. With an interest rate like that, you'd better be paying off that balance in full each month. If not, read on: Our new, interactive credit card analyzer will help you find a new card that won't bleed you dry.

It's no surprise that so many people carry such expensive credit cards. After all, there is a whole industry of card issuers out there devoted to using hidden fees and interest rate gymnastics to gouge you as best they can. Consider this: According to Gerri Detweiler, author of "The Ultimate Credit Handbook," some credit card companies are actually starting to get rid of card holders who pay off their balances each month. "Instead, the card issuer might try to move you to a card with an annual fee or a debit card," she says.

The key to getting a better credit card deal is figuring out how much a given card really costs you. You've probably gotten a stack of card offers in the mail over the past week, each sounding cheaper than the next. Just plug in a few numbers, and our analyzer will calculate the true cost -- or net interest rate -- of each one, so you can compare them side by side. And if you're looking for a specific type of card -- one that, say, gives you airline mileage or no annual fee -- check out our credit card rate center and pick out those that best fit your needs.

Rates
Whatever you do, don't kid yourself when it comes to those tempting introductory offers. Sure, you may think you're going to pay off that balance in full by the time that low rate bumps up to a frightening 18% APR or higher. But those institutions are banking on the fact that you won't. And get real -- they're probably right.

You also want to make sure that the interest rate touted on the card offer doesn't only apply to the juicy balance you're going to roll over. Some card issuers actually charge you two interest rates -- one for your transfer balance, and one for new purchases, says Detweiler.

Rates can also increase sharply if you're late on a payment. "I've seen rates jump from 12% to 19.8% when an account is as little as one day late," says Detweiler. That's often a permanent rate change, so if you fall into that trap, you're probably going to have to change cards altogether. (But you should first give your card issuer a call to see if you can return to the lower rate.)

Grace Period
If you do pay off your balance in full each month, make sure you get a card with a grace period (the amount of time you have to pay your bill before you start accruing interest) of 25 days or longer. Believe it or not, some cards start charging you interest at the time of purchase, so even if you pay off your balance each month, you're still going to owe your card issuer some extra cash.

Other cards have sneaky grace periods that only cover you for 20 days from the transaction. With these cards, if you wait to pay your bill until it's actually due, you'll still owe interest.

Don't be fooled by the grace period, however. If you carry a balance, you pay interest on that baby 365 days out of the year (or at least until you pay it off).

Fees
With more consumers getting smart about paying off their monthly balance, card issuers have gotten slyer with their fees -- from transfer fees to over-the-limit fees. That's why you need to actually read the fee disclosure, which should be listed in a box on the credit card offer. Here are some things to look out for:

• Annual fees. This one is simple -- if you've got a good credit rating and pay off your balance in full, don't pay one. There are enough good cards out there that don't charge this fee that it can be easily avoided.
• Closure fees. Some cards will actually charge you a fee for closing an account, says Detweiler -- sometimes as much as $50! This is highway robbery at its worst, and the only way to avoid it is to know up-front whether the card issuer charges this fee.
• Late fees. Late fees can be charged if your payment is just one day late and can also lead to an increase in your interest rate.

Fixed vs. Variable
You may be offered a choice between a fixed and variable rate, with the fixed rate being slightly higher. But unlike your mortgage, it really doesn't matter much. Why? Because a fixed rate really isn't fixed at all. All "fixed" means is that when your interest rate changes, your card issuer needs to warn you 15 days in advance.

In contrast, a variable rate can change without notice. Most variable rates, however, are tied to a national interest rate like the prime rate, so you shouldn't be caught completely off guard. The bottom line is that you should make sure you understand how the rate is calculated and keep an eye on your bills. But you should be doing that anyway.