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by Jeff
1. August 2011 10:26
 credit card interest and it’s not that easy to pay up especially because your payments are split usually between the principal amount (total amount incurred or borrowed) and the interest itself.
Let’s try to understand credit card interest better with a few examples. Let’s say a credit card payable of $1000 you’re charged with an annual interest rate of 20%, the minimum monthly repayment is 3% of the remaining balance. In this case taking the percentages, for interest of 20%, that would give us (1000*.2/12) $16.66 worth of interest. For the minimum payment amount 1000*.03 gives us $30 for the minimum monthly payment. With an interest of $16.66 monthly making the minimum payment of $30 only gets you $13.34 going to the principal balance of $1000 and the rest goes to interest making for a substantially longer pay off period. Now not a lot of people understand this reasoning, nor the reality about interest rates in credit cards.
A good approach to paying of your credit card interest is to pay extra or above the minimum payment required for the month. Simplifying the equation above, paying more than the minimum is like paying off the interest on top of your minimum payment for the month. Instead of slashing off your payment in halves, one going to interest and one going to your principal amount, you automatically pay off the interest first making your payments more streamlined. This benefits you by cutting off your time to pay by almost half.
Another thing to look out for are the no interest cards and balance transfer interest rates. Supposing you have a credit card that claims to have zero or no interest rate on purchases, this would be particularly good for short term uses, like food and auto fuel. Zero interest rate cards usually have a lower credit limit compared to the regular card so it probably won’t suffice for booking your Caribbean trip or for purchasing a new LED T.V. But there are some credit card interest schemes that offer low interest rate weekdays or interest free days that base off of the purchase day.
When making credit card purchases, take time to review and understand the charges and fees that you would be paying before swiping it off so you would not be shocked by your bill when it comes by the end of the month. Paying off credit card debt isn’t at all that bad, once you have things lined up and funds at a ready to avoid having things pile up making for an insurmountable interest charges on top of the principal amount. Save yourself from a lot of headache by planning and understanding what you would be up against before you get swiped away with credit card interest.
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