12 Worst Types of Credit Cards to Avoid At All Cost

Navigating the world of credit cards can be a daunting task.

With so many options available, it’s easy to fall into the trap of choosing a card that looks great on the surface but ends up costing you more than you bargained for!

To help you make informed decisions, I’ve compiled a list of the worst types of credit cards to avoid.

I’ve given some card examples (*note: card offers and rewards change all the time, but at the time of writing this , my guide was correct).

This guide will ensure you sidestep the pitfalls and find the right card for your needs.

Credit Card Types to Avoid At All Costs

1) Prepaid Debit Cards Disguised as Credit Cards

What They Are:

These easily win the ‘most sneaky’ award in my eyes.

Prepaid debit cards are sometimes marketed as credit cards but what many don’t know is that they don’t actually help you build credit and often come with high fees.

A prepaid card might charge a $4.95 activation fee and a $2.95 monthly fee, eating into your balance quickly.

Why to Avoid:

• Doesn’t Build Credit: Since they are not true credit cards, they don’t report to credit bureaus.
• High Fees: These cards can have activation fees, reload fees, and monthly fees.

Example Card*:

Green Dot Prepaid Visa Card

• Fees: $7.95 monthly fee, up to $4.95 reload fee.
• Drawback: Doesn’t build credit and comes with various fees that can diminish the card’s value.

2) High Annual Fee Cards Without Significant Benefits

What They Are:

Some credit cards come with annual fees that can reach hundreds of dollars but offer minimal rewards or benefits in return.

If you’re looking for a rewards credit card, read the fine print carefully – make sure it’s actually offering you what you’re looking for and not just a list of benefits you’re paying for but will never actually use.

Why to Avoid:

• Unjustified Costs: Paying a high annual fee without receiving significant perks or rewards is a complete waste of money.
• Better Options: Many no-fee or low-fee cards offer comparable or even better benefits.

Example Card*:

First Premier Bank Credit Card

This card might work for some, but for many it just isn’t worth the annual fee. What exactly are you paying the annual fee for given the abysmal rewards?

• Annual Fee: Up to $125 the first year, then $49 annually.
• Drawback: Offers very few benefits or rewards in return for the high fee.

3) Cards with Sky-High Interest Rates

What They Are:

These cards have interest rates that can exceed 18-30%, making any balance carried from month to month extremely expensive.

Why to Avoid:

• Costly Debt: High-interest rates can make it challenging to pay off your balance, leading to a cycle of debt.
• Financial Burden: The interest can quickly outpace your ability to pay down the principal.

If you carry a balance of $1,000 on a card with a 29.99% interest rate, you’ll end up paying nearly $300 in interest over a year. That’s a significant financial hit.

Example Card*:

Credit One Bank Platinum Visa for Rebuilding Credit

• APR: 17.99% – 23.99% variable.
• Drawback: High-interest rates, especially considering it targets people with poor credit. You’ll likely just fall back into the trap of poor credit.

4) Deferred Interest Cards

What They Are:

These cards offer a “no interest” promotion for a set period, but if you don’t pay off the balance in full by the end of that period, you’ll be charged all the back interest from the original purchase date.

Why to Avoid:

• Hidden Costs: Deferred interest can catch you off guard with hefty charges if you miss the payoff deadline.
• Complex Terms: The terms are often confusing and can lead to significant financial pitfalls. Dates are hard to keep up with and the credit card companies know this.

Buying a $1,500 TV with a 12-month deferred interest plan but failing to pay it off entirely within the period can result in several hundred dollars in retroactive interest charges that you weren’t banking on having.

It’s a bit like signing up for a “free” gym membership, only to find out you owe for every month you didn’t go, plus a penalty!

Example Card*:

Amazon Store Card

• Promotion: 0% interest for 6-24 months on purchases over $150 if paid in full within the promotional period.
• Drawback: Retroactive interest charged if not paid off in time, which can be very high.

5) No-Grace-Period Cards

What They Are:

Most credit cards offer a grace period between the end of your billing cycle and the payment due date, during which you can pay off your balance without incurring interest.

No-grace-period cards don’t do that and instead start charging interest immediately on new purchases!

Why to Avoid:

• Instant Interest: You’ll start accruing interest from the moment you make a purchase.
• Budget Complications: It complicates budgeting and cash flow management, especially if you rely on using a credit card for everyday expenses.

Example Card*:

Applied Bank® Secured Visa® Gold Preferred® Credit Card

• APR: 9.99% fixed. Not too bad for initial interest.
• Drawback: No grace period for purchases, meaning interest accrues immediately.

6) Limited Rewards Cards

What They Are:

These cards promise rewards but restrict the categories in which you can earn points or cashback, making it difficult to accumulate meaningful benefits.

Why to Avoid:

• Slow Accumulation: You’ll find it frustratingly slow to earn enough points or cashback to make a difference.
• Better Rewards Structures: Many other cards offer versatile and generous rewards programs.

A limited rewards card for example might only offer points for grocery purchases, but nothing for gas, travel, or dining out.

Example Card*:

Citi Rewards+℠ Card

• Rewards: 2x points at supermarkets and gas stations for the first $6,000 per year, then 1x points thereafter.
• Drawback: Limited categories for earning rewards and earning is capped very low.

7) High Foreign Transaction Fee Cards

What They Are:

These cards charge high fees (typically 2-3% on every transaction) when you use them abroad or for purchases in foreign currencies.

Why to Avoid:

• Costly for Travelers: If you travel frequently or shop internationally, these fees can add up quickly.
• Travel-Friendly Alternatives: Many cards waive foreign transaction fees and even offer travel rewards.

Using a high foreign transaction fee card for a $1,000 purchase abroad can cost you an additional $30 in fees, which doesn’t sound too much but when you also add in currency conversion fees too, it adds up quickly.

Example Card*:

Capital One Platinum Credit Card

• Foreign Transaction Fee: 3% of each transaction in U.S. dollars.
• Drawback: High foreign transaction fees, which are costly for travelers.

8) Secured Cards with Non-Refundable Fees

What They Are:

Secured credit cards require a security deposit, which usually serves as your credit limit. Some of these cards charge non-refundable application or processing fees.

Why to Avoid:

• Upfront Costs: These fees reduce your available credit and are non-refundable, making them a bad deal compared to other secured cards.
• Better Secured Options: There are secured cards that refund your deposit and don’t charge exorbitant fees.

A secured card with a $50 non-refundable application fee and a $200 deposit limits your credit while costing you more upfront.

Example Card*:

First Progress Platinum Elite MasterCard® Secured Credit Card

• Fees: $29 annual fee, non-refundable processing fee.
• Drawback: Upfront non-refundable processing fees reduce the value of the security deposit.

9) Store Credit Cards

What They Are:

Store credit cards are offered by retail stores and often come with high-interest rates and limited usability, if any, outside the store.

Why to Avoid:

• High-Interest Rates: These cards typically have higher interest rates than general-purpose credit cards.
• Limited Use: They are usually only beneficial for purchases at the issuing store.

A store credit card might also increase the interest rate and only tell you this in fine print e.g. they might offer 20% off your first purchase but then hit you with a 27% APR and limited rewards thereafter.

Example Card*:

Macy’s Credit Card

• APR: 25.49% variable.
• Drawback: High-interest rates and limited rewards usability outside Macy’s stores.

10) Balance Transfer Trap Cards

What They Are:

These cards offer enticing balance transfer deals, but come with high balance transfer fees or hike up the interest rate if the balance isn’t paid off within a certain period.

Why to Avoid:

• High Fees: Balance transfer fees (often 3-5%) can negate the benefit of transferring a balance.
• Interest Rate Pitfalls: If you don’t pay off the balance within the promotional period, the interest rate can skyrocket.

A balance transfer card with a 3% fee on a $5,000 transfer will cost you $150 upfront. If not paid off within the promotional period, you might face a 25% interest rate.

Example Card*:

Wells Fargo Platinum Card

• Promotion: 0% APR for 18 months on balance transfers.
• Drawback: 3-5% balance transfer fee and high regular APR of 16.49%-24.49% variable after the promotional period.

11) Unreliable Rewards Redemption Cards

What They Are:

These cards make it difficult to redeem your rewards due to complicated terms, blackout dates, or minimal redemption options.

For example, a card might offer travel points but restrict their use to specific dates or airlines, limiting your ability to use them effectively.

Why to Avoid:

• Redemption Hassles: The difficulty in redeeming rewards can make the card less valuable.
• Better Rewards Programs: Many other cards offer straightforward and generous redemption options.

Example Card*:

Wyndham Rewards Visa Card

• Rewards: Earn points for stays at Wyndham properties.
• Drawback: Limited redemption options and blackout dates can make it hard to claim rewards.

12) Cards with Sneaky Fees

What They Are:

These cards are notorious for hidden admin fees, such as account maintenance fees, inactivity fees, and more.

These cards might even charge a $10 monthly maintenance fee if you don’t use it frequently enough.

Why to Avoid:

• Hidden Costs: These fees can add up quickly, costing you more than you anticipated.
• Transparent Alternatives: Look for cards with clear fee structures and minimal hidden charges.

Example Card*:

Credit One Bank® Visa® Credit Card

• Fees: Annual fee of $0-$99, monthly maintenance fees after the first year, and fees for credit limit increases.
• Drawback: Numerous hidden fees that add up quickly.