Not being aware of how credit card interest works could have serious financial consequences for your finances, particularly if you are unable to make timely, large payments. But by gaining some basic knowledge of how the interest system works, you could also maximize the advantages and rewards of frequent credit card ownership. The first thing that you need to know is how interest is calculated on your balance, both secured and unsecured. This will enable you to decide whether or not annual fees, payment penalties, and other miscellaneous charges are worth the added expense.
How to Calculate How Credit Card Interest Works: The way you calculate your credit card interest is quite simple. You add up the total of all your monthly bills, including the payments for any prepaid and reloaded debit cards that you may use, as well as any other expenses, such as gas and grocery items, each day you are charged. Then divide this number by twelve to come up with your monthly minimum payment. Keep in mind, though, that you don't just have to pay the minimum every single day; the minimum payment should be increased overtime to keep up with changes in your financial responsibilities.
How Credit Card Interest Works: To calculate how much interest your cards will be charged, look at the amount of time it takes you to pay off the balance each month. If you are the typical person who pays his or her bills on time, then this information will tell you how much interest your card will accumulate over time. However, if you find that you have a tendency to skip a bill or two or tend to let a payment go by too quickly, then you may be charged a higher interest rate than you would otherwise. The general rule is that the longer you go without making a payment, the more interest you will be charged on any purchases.
How to Avoid Paying Too Much Interest: How to calculate how much interest you will be charged is only part of the equation when it comes to figuring out how to avoid paying too much interest. If you can, try to pay your balances off as soon as possible. If you do not have the money to do so, consider transferring the balance to an introductory offer card, which can save you hundreds of dollars per year. In addition, try to pay the minimums on all of your credit cards, including the promotional ones. In some cases, credit card companies may reduce the minimum payments when you make them regularly.
What Credit Card Companies Look for in a Client: One thing that many credit card companies look for when considering whether to offer you their services is your credit history. Most companies look closely at your payment history and how long you have held your accounts. If you have been diligent about paying your bills on time and have avoided making excessive or defaulted payments, then you will most likely be offered a low-interest rate. In general, if you are a good customer you will find that you are offered a lower APR than those who have bad credit histories and/or late payments and have been more than two months behind in monthly bills.
Annual Percentage Rate (APR): As mentioned above, APR is the interest rate applied to the balance you will transfer to the new card. This will vary between cards, so it is important that you choose one with the lowest APR. You should also make sure to read the fine print carefully so you will know exactly what the interest rate will be for your new credit card once the transfer has been made. You should also compare APRs to other cards so you can choose the one with the lowest overall cost as well as one with the lowest annual percentage rate.