Low Rate vs. Annual Fee Credit Card Calculator

You've seen them advertised on television and in magazines: credit cards with very low interest rates, significantly lower than the average credit card's APR (annual percentage rate), yet that come with a seeming catch: a fixed annual fee. The annual fee ensures that the credit card issuer will make money even if you never use the card, or, worse (for them) use the card but pay the balance in full each month, thereby avoiding interest.

If you never carry a credit card balance from month to month, the annual-fee option is naturally much less attractive. If you're just hoping to get out from under credit card debt soon, the annual-fee credit card may be hard to swallow, too. But what if you continue carrying a balance year in and year out? Credit card interest can quickly add up to far more than any annual fee credit card's annual fee.

Use this calculator to compare the two credit card options to see which is the better deal.

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Calculator Legend

Annual Fee: Enter the credit card's annual fee as a whole dollar amount.
Interest Rate: Enter each credit card's current APR as a percentage.
Balance: Enter the current balance of your current credit card as of today.
Current Payment: Enter the amount you plan to pay on average each month.
New Charges: Enter the amount you expect to charge to your credit card, on average, each month.

Credit Cards, Interest, Fees, and Debt Explained

Credit card debt is notoriously tricky. Interest builds on interest, and there are always fees for each late payment and cash advance.

APR: Annual Percentage Rate

A credit card's interest rate is usually called the APR, for annual percentage rate. For most no-annual-fee credit cards, the APR stands between ten and twenty percent, sometimes up to 30%. For annual-fee credit cards, the APR is usually a few points lower. Of course, in either event, the APR offered to you will depend largely on your credit history.

In most credit card cardholder agreements, the card issuer reserves the right to raise the APR in a few cases:
  • you are late making a payment
  • you approach your credit limit
  • you get adverse information on your credit history
Many people are not aware of the fact that their credit card APR may increase. Even fewer are aware that simply approaching their credit limit may leave them with a higher APR, or that their APR may increase because of problems they have with other creditors.

The calculator assumes your credit card APR will stay constant. Just remember that keeping your credit report free of black marks is another important way of keeping your credit card interest low.

"Affinity" or "Rewards" Credit Cards

In the past, one reason for some people choosing annual-fee credit cards was the rewards that often came with them. At one time, few credit cards except annual-fee credit cards offered frequent flyer airline miles, for instance. Today, there are also no-annual-fee credit cards that offer rewards such as frequent-flier miles. In some cases, the rewards on the no-annual-fee credit card may rival those on a comparable annual-fee credit card. Also, it's important to look critically at the real value of the rewards offered. You may well end up getting a $100 plane ticket each year with a credit card that is charging you several times that each year in interest and/or fees.

Credit Card Penalty Fees

Credit cards are also notorious for their penalty fees. Unfortunately, most people do not compare penalty fees when choosing a credit card. But considering how easy it can be to accidentally make a late payment or even exceed a credit limit, it pays to have the lowest penalty fees possible.