Credit Management by Knowing How Credit Card Interest is Calculated

Do you always have the idea that credit card interest is based on 24% per annum, which means only 2% per month? You are only partially right. Here are some tips you should learn about credit card interest.

1. Make sure you pay off every single cent by the payment due date stated in your statement every month, which means $0.00 in your outstanding payment. Why? Because if you have balance amount that is brought over, the interest that you are paying does not only includes the interest of the remaining amount, it also include the new purchases you made during the month.  It simply means that if you have outstanding balance, you will not enjoy the “Buy First Pay Later without interest” benefit.

2. Credit card interest is not only based on 24% per annum or 2% per month, it is being calculated on a daily basis which is 24% divided by 365 (days in a year) that equate to  0.0658% interest per day. See illustration for better picture.

If you have accumulated a total of $3,000 and have only managed to pay off $500, the remaining $2,500 will have interest charged on it. If you have noticed from the picture, the interest per day can come out to a sum of $1.65, which you might not see it as make a purchase during this period (the period which you have not cleared the payment), the amount will be added and interest will be incurred on the new total amount.

Some other tips on credit card management

3. If you have a lump sum of credit card debt to clear, you might want to consider other sources, like personal loans which interest is lesser than 24% per annum and allow you to repay in instalment. Do take note once you have take up other sources, you better cut all your credit cards and diligently pay off the loan instalment, if not , you will be getting into bigger financial trouble.

4. Remember to call your credit card company and request to have any annual fees waived as a courtesy. Most of the time, credit card companies will do this if you just ask. If not, you can just cancel it.

Once you understand more about credit card, it might de-motivate or refraining you from using it too often.