3 Things You Should Know About Interest Rates

You should be in control of your credit rating.

Let’s talk interest I find this term to be quite ironic, given the fact that it is not in any way interesting. And this is coming from someone who truly enjoys puns.

For those of us who own a credit card, or two, or three…we often don’t realize how much interest impacts us. If we do, we don’t know three very important things that banks don’t exactly inform you of before it’s much too late.

Now although there are interest rates on many other aspects of finances – like mortgages, student loans, payday loans, and all other ways us spenders borrow – Today, I will strictly be focusing on credit card interest.

Here are 3 things you should know:

1. Rates & Yearly Fees.

Interest rates can vary depending on the type of card you have, the promotional rate you receive, and many other considerations. However, typically they range from 13-30% (remember I say typically). Credit card companies and banks will also charge a yearly fee – make sure that you know what both of these are before choosing your card.  Banks are required to disclose the interest rate, keep things in plain language, and a few more rules to protect us silly little consumers.

2. Delinquencies.

This very fancy looking word is not the type of fancy you want to be. Every time you miss making a minimum payment, are late on a payment, or don’t pay a bill that is directly connected to your credit card account i.e.) utilities, internet, cable, etc., one of these “delinquencies” is slapped onto your credit score. If you miss more than one minimum payment, you will be seriously screwed. Once you have a delinquency, the bank is allowed to increase your interest rate without warning, and this can affect your future mortgage opportunities, future job applications, and more.

If you're thinking OMG WHAT HOW DID I NOT KNOW THIS WHY DID NO ONE TEACH ME THIS?

So am I.

To learn about credit ratings – check out free classes in your city. Financial companies of many shapes and sizes, including my own, offer great financial literacy options for free. Send me a message if you want more details.

3. How You Are Charged.

This is where things get tricky. Most banks will give clients who make a purchase 21 days “interest-free”, or a “grace period” for new purchases. This means that if you pay your “New Balance” in full by your payment due date, you will avoid interest. However, if not – you will then pay interest on each new purchase from the transaction date until payment date. Your next statement will continue to carry over the interest accrued on each new purchase.

To calculate the interest, the bank will add the amount you owe each day, divided by the total number of days in that statement period. That will be your “daily balance”. They then multiply the average daily balance by the daily interest rate. The “daily interest rate” is the annual interest rate divided by 365 multiplied by the days in the statement period.

Example at 24.99% interest rate:

Previous Statement Balance $3,812.99

Payments & credits -$1,200.00

Purchases & debits $139.74

Cash advances $0.00

Interest $77.19

Fees $0.00

NEW BALANCE $2,829.92

Making any sense? Don’t worry – my brain hurts too!

Although this covers quite a lot of information, we are only scratching the surface of credit card interest. Don’t be afraid to book an appointment with your bank and ask for a lower rate, or to get more information on your fees. You should be in control of your credit rating.

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