Photoalto/Frederic cirou/gettyimages; Illustrations by Hunter Newton/Bankrate
When it comes to managing your credit card, the annual percentage rate (APR) is one of the most important factors to consider, especially if you plan to carry your balance each month. This is because APR determines how much it costs to borrow money with your card. Also, credit cards are one of the most expensive ways to borrow money these days, as the average credit card rate is over 20%.
If you never have a credit card balance, the APR may just be the number on your invoice. However, according to Bankrate’s 2024 credit card debt survey, if you’re one of the 48% of American cardholders who carry debts each month, that could be the difference between staying at the pinnacle of your finances or falling into debt.
If you don’t pay your balance completely every month, your April is important
If you have a credit card balance, the card’s APR is important. If you do not repay the balance in full in the statement, the lender will be interested in the remaining balance. And credit card interest usually worsens daily. This means that you will earn interest every day and effectively charge interest in your interest. This can lead to debt disasters if you carry balances continuously on a monthly basis.
Let’s say your APR has a 20% credit card. If you have a balance of $1,200 and only pay a minimum of $45 statement per month, it could take three years to repay that one balance. Bankrate calculators say you can pay around $400 in interest on your privileges.
If you know you need to balance your credit card, consider these two strategies to get away from debt trouble.
- I always make the minimum payment. There may be a time when you can’t pay the balance in full, but you’re always aiming to at least make the minimum payment. This is the minimum amount you can pay each month while still in good condition with the issuer. By paying at least the minimum in your statement, you can avoid late fees, penalty APRs, and negative marks on your credit report. Please note that the issuer will continue to charge interest on the remaining balance.
- I always pay on time. Payment history accounts for 35% of your FICO credit score, making it the most important factor when calculating your credit score. Delayed payments can remain on your credit report for the next 7 years. Usually, missing out on payments in one or two days is not a crisis. Some lenders will not report missed payments until at least 30 days late. You can still pay the postponed fee, but if it is a rare occasion, the issuer may be willing to give up the fee over the phone.
Your purchase APR doesn’t matter whether you repay your balance every month, thanks to your bounty period
The Credit Card Act of 2009 requires lenders to deliver their invoices at least 21 days in advance. During this time, most lenders offer interest-free periods. Most card issuers do not charge interest on purchases by the time you tap or swipe your card until the invoice date, assuming you don’t have a balance yet from your previous statement cycle.
Here are some things to keep in mind:
- Most major credit card issuers offer interest-free periods of bounty, but not necessary. You should read detailed credit card printing or talk to your customer representative to make sure your lender is offering this benefit. The Schumerbox on the card contract is a fee-filled chart at the top of the document. You will see a section that says something like “How to avoid paying interest on purchases.”
- At the end of the bounty period, interest begins to develop. Assuming you enjoy the typical interest-free period of blessing at the time of purchase, know that when it is finished, the remaining outstanding balance will generate interest. It’s generally clear if you pay your balance in full and use your card only for purchases.
- As long as you pay your balance fully, you can enjoy the bounty period of each billing cycle. If you have a grace period and you want to repay your balance by the due date, the bounty period will last and you can make a new purchase with a credit card without paying interest. After balancing, the card issuer can cancel the interest-free bounty period with a cycle in which at least one or two billing cycles are charged.
If you pay consistently for credit card purchases each month, it doesn’t matter whether your credit card charges 10% or 25% interest. You don’t have a balance of those purchases, so your issuer will not charge you any interest. Still, you need to know what the interest rate on your card is. So, if you find yourself balanced for a month, you’re ready.
Your interest rate is important for cash advance and balance movement
Cash Advance is a type of loan that allows you to withdraw money from an ATM or bank via a credit card, and balance transfer is a way of transferring debts from one credit card to another. It is especially important to know the APRs associated with these types of transactions. Here’s why:
Cash Advanced
If you need money in a hurry, you may be more likely to get a credit card cash advance. Cash Advances usually do not have a bounty period. In other words, the money you move forward will be of interest from the time you take away the loan. Cash Advance has a steeper interest rate than purchases. With that in mind, it’s important to understand the cash advance rate and fees you face by taking away this type of loan.
Balance Transfer
Balance transfer is another transaction that is useful to pay attention to the interest rates on the card. The best balance transfer cards often have a promotional 0% interest rate over a period of time. If you are currently using a 0% intro APR offer, the interest rate will not affect you until the intro period expires.
Otherwise, if you have not repaid the balance transfer amount before the end of your promotion period, the interest rate will increase to the normal rate. Read the detailed print of the Balance Transfer Card and understand both the normal APR that begins after the promotion period and Potential penalty APR and fees if you missed a payment.
What to consider if you need to balance it?
Failure to pay the balance in full can have a negative impact on your finances. This happens in every month when your spending exceeds your income, such as an over-emergency, whether or not your spending is excessive or something unexpected throws a wrench into your budget.
But at the end of the day, life happens and sometimes there needs to be a way to rebound. Keep these tips in mind to keep track of your credit card balances in mind.
- Do not ignore fine printing. Even at low interest rates, there are terms of use, so be sure to check the detailed printing of your card. For example, looking at when a card issuer can raise interest rates can make it even more difficult to pay off your balance.
- Consider your budget. If you need to balance, try to maintain comfort. Being conservative is better. If you can’t pay it back a few months later, consider how your debt will affect your finances if interest continues to accrue.
- Consider your credit score. Credit scores are another factor to consider before balancing. Payment history and amount are two of the most important factors when it comes to calculating your credit score. If you are unable to pay off your credit card debt and your balance goes out of control, your credit score will be damaged.
Conclusion
If you pay your purchase in full by the card deadline and the issuer offers an interest-free grace period at the time of your purchase, you can almost ignore the credit card APR. However, if you get a balance, complete a cash advance, or balance transfers outside the promotion period, these annoying percentages can be added immediately.
If you’re navigating credit card debt and don’t know where to go from here, consider using Bankrate’s credit card payoff calculator to determine how many months it will take to get free debt.
