Do you remember what the original Annual Percentage Rate (APR) was when you opened your credit card? Do you know how to find it now and see if/how it has changed? You’re in luck, when the U.S. Congress passed the Credit Card Accountability Responsibility and Disclosure Act (or the Credit CARD Act) in 2009, it expanded on the Truth in Lending Act (TILA). One of the benefits to credit cardholders was making terms and conditions of credit cards clearly and easier for cardholders to understand.
This included making sure credit card statements are easier to read while adding vital information. When you look at your credit card statement, you should clearly find several important pieces of information in addition to your APR.
When you receive your monthly credit card statement—which has to be sent at least 21 days before your minimum payment due date—you’ll see information including:
• Account summary
• Payment information
• Account change notifications
• Transactions from the most recent billing period
• Monthly interest calculation
• Total interest and fees paid for the current year
When you’re looking for your interest rate, you’ll find that information with the monthly interest calculation and the total amount of interest and fees you’ve paid for the current year.
Interest is calculated separately for each type of balance you have on the credit card, including purchases, balance transfers, and cash advances. So, you’ll want to pay close attention to the transactions section of your billing statement, too. Not only should you ensure all transactions and amounts are accurate, you’ll want to understand how interest is being applied to them.
To determine how your interest is calculated, you can convert your APR to a daily percentage rate. To do this, divide the APR shown on your statement by 365, the number of days in a year. At the end of each day, the card issuer will multiply your current balance by the daily rate to come up with the daily interest charge. That charge is then added to your balance the next day, a process called compounding.
If your credit card has an APR of 15%, it will have a daily rate of .041096%.
What does that mean for what you pay in interest?
If you have a balance of $1,000 at the 15% APR standard interest rate at the start of a billing cycle, the next day, interest is added and the balance becomes $1,000.41, plus any additional purchases and minus any new credits or payments. This process occurs each day until the end of your monthly statement cycle. So, at the end of the month, the beginning $1,000 balance becomes $1013 when interest charges are applied at 15% APR.
If you’re tired of worrying about your APR or struggling with your credit card payments, CreditAssociates can help you become debt-free while you pay a fraction of what you owe.
CreditAssociates can help you get out of debt.
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