Ad Blocker Detected
Our website is made possible by displaying online advertisements to our visitors. Please consider supporting us by disabling your ad blocker.
APR: Understanding how your credit cards keep charging you
Credit counsellors are often explaining what APR (or the Annual Percentage Rate) is. It helps explain to clients how they got into debt, and what measures they can do to get out of it again. It is basically the amount of interest added onto your credit card bill at the end of the month. Every card is different though, so fee structures will change depending on institution. The following will use 18% as the APR.
Annual Percentage Rate Explained
The APR is not actually used in calculating your monthly bill. Instead the Periodic Rate (PR) is. This PR is the time period in between when interest is applied. This is nearly always daily or monthly. We will use monthly, if your credit card is daily, substitute the 12 months for 365 days.
PR = APR / 12 months
1.5% = 18% APR ÷ 12
Using this in a real example; let’s assume our client has carried a balance on a credit card for $1,000. With an APR of 18%, we simply multiply the PR by the balance:
Interest = PR * $1,000
$15 = 1.5% * $1,000
Compounding Interest
A single month’s interest may not be a big deal, but did you know that the interest charged on the second month actually includes the previous month’s interest if the balance is not paid off in full? Most clients come to us once they are tired of paying off interest that never goes down.
Stopping the interest
Consolidation programs for debt do exist where the debtor does not apply for a loan. This is a Debt Management Plan, and credit counsellors can explain these key features:
- Interest on the debts is usually reduced, if not stopped making payments go to the principle debt.
- The monthly payments are combined into a consolidated payment freeing up the debtors time.
- The monthly payments are reduced.
Summary
You need to get a hold of you finance problems, before they are with you forever. We must stress that you should read and understand the terms and conditions before you go out on a spending spree.
Don’t be afraid to call a credit counselling agency to ask them questions about getting control of your debts. Your call will be free and will be a good staring point on your path to becoming debt free.
Related Blogs
- Related Blogs on APR: Understanding how your credit cards keep charging you and why you should choose debt consolidation
