interest calculation http://www.wisebread.com/taxonomy/term/8380/all en-US How Much Does Your Credit Card Debt Cost You? http://www.wisebread.com/how-much-does-your-credit-card-debt-cost-you <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-much-does-your-credit-card-debt-cost-you" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/4222474443_a5e2ebaabe_z.jpg" alt="credit card debt" title="credit card debt" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Credit cards sometimes make a purchase hard to pass up. For example, they make it possible to buy something for $3,000 and pay just $60 per month until it's paid off. Most people can afford a $60 monthly payment, but what is often overlooked is how much you end up paying in interest. A common mistake people who are new to credit cards often make is paying just the minimum payment on their credit card bills. The small monthly minimum payments seem insignificant and comfortable in most budgets until you look closer at what your credit card debt is really costing you over time. (See also: <a href="http://www.wisebread.com/six-steps-to-eliminating-your-debt-painlessly">6 Steps to Eliminating Debt</a>)</p> <h3>How to Calculate True Credit Card Debt Costs</h3> <p>If you carry an average daily balance of $3,000 in credit card debt, your minimum payment will be around $60 a month (assuming a 2% minimum payment requirement &mdash; but some cards may have a different minimum percentage). If the credit card charges a 15% APR, interest could cost you between $400 and $450 per year.</p> <p>Here's how to figure it out:</p> <ol> <li>Divide your APR by 365 days per year. 15% / 365 = (about) .04%</li> <li>Multiply .04% by 30 days per month. .04% x 30 = 1.2, or .012%</li> <li>Multiply .012% by the $3,000 original balance = $36.00 a month in interest&nbsp;</li> </ol> <p>With a $60 minimum payment, $36 goes toward interest each month and $24 goes toward your $3,000 credit card balance. So after you send your first $60 payment to your $3,000 credit card bill, you will still owe $2,976.</p> <p>If you only pay your minimum balance due each month (2% or $25 minimum), it will take approximately 16 years to pay off your $3,000 debt. During those 16 years of making the minimum payments, you will have paid $3,641 in interest, turning your $3,000 purchase into a $6,641 one. Whatever you purchased for $3,000 will likely be broken and forgotten long before you've paid for it in full!</p> <h3>Avoid Becoming a Credit Card Victim</h3> <p>Credit cards are important in our lives now &mdash; you need one to reserve a hotel room, rent a car, or book tickets for travel. They can provide a source of emergency funds if you've been injured or have another emergency that must be paid for right away. But you want to get into the habit of paying for your credit card debt in full each month as often as possible to avoid paying interest &mdash; or at least pay as much as you can toward any credit card debt to reduce the amount of interest you pay rather than making just the minimum payment.</p> <h3>How to Reduce Your Current Credit Card Debt</h3> <p>If you've already racked up debt on a credit card or two and want to avoid paying the credit card company high interest amounts, you'll want to become proactive in paying off your credit card balances.</p> <p>Start by creating a budget that allows you to allocate as much money as possible to credit card debts, rather than sending just a minimum payment to each account every month. Get a <a href="http://www.wisebread.com/4-places-to-start-your-debt-management-crusade">debt management</a> plan in place.</p> <p>You should also take a look at <a href="http://www.wisebread.com/the-best-0-balance-transfer-credit-cards">balance transfer credit cards</a>. If you are eligible for a card with a 0% interest promotional offer for balance transfers, you can move your higher-interest credit card balances to the lower-interest card and focus on paying off your debt. Since you won&rsquo;t be charged interest during the promotional period, all of your monthly payments will be applied toward the principal balance, which will help you pay your debt off faster.</p> <p>Finally, if you find you are barely able to pay just your minimum credit card payments, you should contact the <a target="_blank" href="http://www.nfcc.org/">National Foundation for Credit Counseling</a> for advice.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <p>&nbsp;</p> <div align="center"><a href="//www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fhow-much-does-your-credit-card-debt-cost-you&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FHow%20Much%20Does%20Your%20Credit%20Card%20Debt%20Cost%20You-.jpg&amp;description=How%20Much%20Does%20Your%20Credit%20Card%20Debt%20Cost%20You%3F" data-pin-do="buttonPin" data-pin-config="above" data-pin-color="red" data-pin-height="28"><img src="//assets.pinterest.com/images/pidgets/pinit_fg_en_rect_red_28.png" alt="" /></a> </p> <!-- Please call pinit.js only once per page --><!-- Please call pinit.js only once per page --><script type="text/javascript" async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <div align="center">&nbsp;</div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/How%20Much%20Does%20Your%20Credit%20Card%20Debt%20Cost%20You-.jpg" alt="How Much Does Your Credit Card Debt Cost You?" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/debbie-dragon">Debbie Dragon</a> of <a href="http://www.wisebread.com/how-much-does-your-credit-card-debt-cost-you">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-9"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/six-steps-to-eliminating-your-debt-painlessly">6 Steps to Eliminating Your Debt Painlessly</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/is-a-balance-transfer-offer-a-good-deal">Is a Balance Transfer Offer a Good Deal?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/3-ways-paying-off-credit-cards-is-like-playing-beer-pong">3 Ways Paying Off Credit Cards Is Like Playing Beer Pong</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/now-is-the-best-time-in-years-to-do-a-credit-card-balance-transfer">Now Is the Best Time in Years to Do a Credit Card Balance Transfer</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-best-0-balance-transfer-credit-cards">The Best 0% Balance Transfer Credit Cards</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Credit Cards Debt Management cost of credit cards debt reduction interest calculation Tue, 07 Dec 2010 14:00:15 +0000 Debbie Dragon 365851 at http://www.wisebread.com Credit Card Fees: Hidden and Otherwise http://www.wisebread.com/credit-card-fees-hidden-and-otherwise <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/credit-card-fees-hidden-and-otherwise" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/credit card fees.JPG" alt="please dip your credit card" title="please dip your credit card" class="imagecache imagecache-250w" width="250" height="188" /></a> </div> </div> </div> <p class="MsoPlainText"><span>Annual fees, grace periods, balance transfer options&hellip;it's a wonderful world of <a title="Guide to Using Credit Cards Wisely" href="http://www.wisebread.com/credit-card-guide">credit card jargon</a> out there, and depending on your needs and planned uses for credit cards, it pays to look at your options. </span></p> <p class="MsoPlainText"><span>Following are the various ways in which credit card companies can get some money out of you: </span></p> <p class="MsoPlainText"><span> </span></p> <h2><span>Interest Rates</span></h2> <p class="MsoPlainText"><span>All credit cards levy an interest rate, the main difference being the percentage charged. Obviously you want to choose the card with the lowest rate. If you already have a card with a higher interest rate but that <a target="_blank" href="/credit-card-rewards-programs">you like for other reasons</a>, then try calling and asking for an interest rate reduction. According to a 2002 Public Interest Research Group study, 56% of people who called their credit card issuer and asked for a reduction were successful. </span></p> <p class="MsoPlainText"><span> </span></p> <h2><span>Early Interest Posting Dates</span></h2> <p class="MsoPlainText"><span>If you are in the market for a new card, find out if interest is charged from the date the charge is posted, or the date of purchase. Most will now charge from the date of purchase (which is usually a few days earlier than the posting date), but if you can find one of the other kind, it may be worthwhile. </span></p> <p><span>This is only really an issue if you plan to carry a balance on your credit card at any time, which if it can be avoided, would be preferable. </span></p> <p class="MsoPlainText"><span> </span></p> <h2><span>How Interest is Calculated</span></h2> <p class="MsoPlainText"><span>Some cards will charge interest on the balance owing at the month or billing cycle's end. Makes sense, right? </span></p> <p class="MsoPlainText"><span>Well, there is a growing trend now to charge interest instead on the average daily balance. So if you charge $1,500 in September, and pay $1,000 of it off on the due date, the following month you will actually be charged interest on the $1,500 average daily balance instead of the actual $500 left owing. </span></p> <p class="MsoPlainText"><span> </span></p> <h2><span>Grace Periods - or Lack Thereof</span></h2> <p class="MsoPlainText"><span>Usually, a grace period will allow for a responsible credit card user to pay off all their purchases within 24-30 days without paying any interest. </span></p> <p class="MsoPlainText"><span>But as some readers pointed out in the comments on <a target="_blank" href="/top-seven-reasons-why-i-use-my-credit-card-for-everything">another article</a>, even those dutiful credit card users who pay off their balance in full each month can sometimes get duped by circumstance (like the bank processing a transfer late) and miss the payment due date by a sliver. </span></p> <p class="MsoPlainText"><span>For those people above and for those who regularly carry balances, even grace periods won't save you: if you have an outstanding balance, you are charged interest on new charges from the date of purchase. (All the more reason not to carry a balance)!</span></p> <p class="MsoPlainText"><span> </span></p> <h2><span>Nuisance Fees</span></h2> <p class="MsoPlainText"><span>In a world of increasing fees for every little thing from booking airline tickets to doing your banking, credit cards are no exception to this bandwagon. The latest in nuisance fees can include: </span></p> <ul> <li><span>Late payment fees (as high as $40)</span></li> <li><span>Over-the-limit fees (as high as $25)</span></li> <li><span>Inactive account fees</span></li> <li><span>Not carrying a balance fees (or carrying a balance under a certain amount)</span></li> <li><span>Monthly fees that are a percentage of your credit limit</span></li> <li><span>Annual flat fees</span></li> <li><span>Balance transfer fees</span></li> <li><span>Credit limit increase fees</span></li> <li><span>Set-up fees</span></li> <li><span>Return item fees</span></li> <li><span>Fees for paying by telephone</span></li> </ul> <p class="MsoPlainText"><span>&hellip;and on it goes. </span></p> <p class="MsoPlainText"><span> </span></p> <h2><span>Cash Advance Interest Charges</span></h2> <p class="MsoPlainText"><span>Many cards charge higher interest rates on cash advances in addition to transaction fees. </span></p> <p class="MsoPlainText"><span> </span></p> <p class="MsoPlainText"><span> </span></p> <h2><span>What They Have to Tell You About</span></h2> <p class="MsoPlainText"><span>When you are searching for a new credit card, the following items are required by law to be disclosed:</span></p> <ul> <li><span>Annual Interest Rate (also called annual percentage rate or APR)</span></li> <li><span>The teaser or introductory rate, along with the details of when and how the regular rate kicks in</span></li> <li><span>How the variable rate is determined (if applicable)</span></li> <li><span>Penalties for late payments</span></li> <li><span>Annual, periodic, or membership fees</span></li> <li><span>How the balance is computed for interest purposes (ie: average daily balance or balance owing methods)</span></li> <li><span>Minimum charge</span></li> <li><span>Grace period (the period of time you have to pay off the balance without incurring interest)</span></li> </ul> <p class="MsoPlainText"><span> </span></p> <p class="MsoPlainText"><span> </span></p> <h2><span>My Card Sucks! I Want To Cancel</span></h2> <p class="MsoPlainText"><span>If after reading this you think you have one of those cards with too many fees, you can cancel it. However, there is a chance that it may reduce your credit score. Check out <a target="_blank" href="http://www.myfico.com">FICO</a> to find out what FICO scores consider, as well as how best to understand your credit score. </span></p> <p class="MsoPlainText"><span> </span></p> <p class="MsoPlainText"><span><br /> To that end, you should be aware of <strong>soft and hard closes</strong>, and how they affect you. </span></p> <p class="MsoPlainText"><span> </span></p> <h3><span>Soft Closes</span></h3> <p class="MsoPlainText"><span>With a soft close, the credit card company will acknowledge that you want to close out the card, but they will automatically reactivate it if charges go through. Their rationale is that they are saving you embarrassment of the card being rejected if you happen to be out shopping and inadvertently whip their card out! </span></p> <p class="MsoPlainText"><span>Hence, a soft close will also often affect your credit score and ability to qualify for large loans later on if the lender does a credit check and sees that you have all sorts of credit available to you, but doesn't see that the credit is soft closed. </span></p> <p class="MsoPlainText"><span>It also makes you vulnerable to fraud, since if a professional steals your identity, they can order another card from a soft-closed account and start charging. </span></p> <p><span> </span></p> <h3><span>Hard Closes</span></h3> <p class="MsoPlainText"><span>Ensuring your account is hard closed entails a little more follow-up work, but can pay off in the end. You must first request a hard close when you are cancelling the card, and follow up with a confirming letter. In your letter, tell the credit company to report &quot;closed by consumer&quot; to the credit bureaus as well, and keep copies of everything. </span></p> <p class="MsoPlainText"><span>Some issuers will refuse to do this: their policy might instead be to process a soft close first and a prescribed time period, at which point it reverts to a hard close. Find out how long that period of time is, and ensure that the account is hard closed with a letter at the end of that time. </span></p> <p class="MsoPlainText"><span> </span></p> <p class="MsoPlainText"><span> </span></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/nora-dunn">Nora Dunn</a> of <a href="http://www.wisebread.com/credit-card-fees-hidden-and-otherwise">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-dirty-secrets-of-credit-cards">The Dirty Secrets of Credit Cards</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-a-credit-card-cash-advance-costs-you-more-than-a-purchase">How a Credit Card Cash Advance Costs You More Than a Purchase</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-ways-to-pay-off-high-interest-credit-card-debt">5 Ways to Pay Off High Interest Credit Card Debt</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-things-you-need-to-know-before-taking-out-a-personal-loan">10 Things You Need to Know Before Taking Out a Personal Loan</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/is-a-balance-transfer-offer-a-good-deal">Is a Balance Transfer Offer a Good Deal?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Credit Cards annual fees APR balance transfer credit card fees grace periods interest calculation interest posting dates interest rates nuisance fees Sun, 23 Dec 2007 23:14:26 +0000 Nora Dunn 1535 at http://www.wisebread.com