Interest is added to the total amount of money you owe on your credit card. It often goes unnoticed since most statements only list the total amount paid each month. It doesn’t show how much interest was charged and how much to reduce the balance. If you don’t want to worry about interest, you should pay off your credit card debt in full every month.
When and how is credit card interest charged?
Interest is charged on your credit card bill every month. Most people only pay attention to how much they owe in total. That amount increases each month with interest being added to the balance.
Divide the APR or annual percentage rate by 365, and you will get the interest rate. For example, a credit card with a 15% APR would have a monthly interest rate of .0469%. It means that if you had a balance of $100 on this credit card, you’d be charged an additional 4.69 cents each day until you paid off the total amount.
Credit card companies charge interest because they give you the privilege of borrowing money. Think of it this way: if you wanted to borrow $1000 from your friend, they would most likely lend it to you with no questions asked. However, if they did ask for some repayment, they probably wouldn’t lend you a penny if you couldn’t give them at least 10% interest per year.
Credit cards with the lowest annual percentage rates (APR) offer the lowest monthly interest rate, calculated by dividing the APR by 365. For example, an APR of 12.45% means you would have a monthly periodic interest rate of .0716%. If you had a balance of $1000 on this credit card, you’d be charged an additional 7.16 cents each day until you paid off the total amount.
The majority of credit cards charge interest between 11% and 29%. Suppose you are currently carrying a balance on your credit card but cannot pay it off in full. In that case, the best way to determine how much interest you are being charged is to calculate your daily periodic interest rate.
The best way to avoid paying interest is to pay your loan in full every month. If you cannot do this, try to make a larger payment towards the principal balance each time you get your credit card bill. Using a debit card is another good alternative since it’s the closest thing to paying with cash. The safest method is only to charge what you know you will be able to repay.
To calculate credit card interest accurately, use an online calculator. Enter in all of your information. It should show you the daily periodic interest rate and how much money you will pay in interest.
According to the experts at SoFi, “Individually, households with credit card debt owe an average outstanding balance of more than $15,000.” To learn more about when do you get charged interest on a credit card, contact them today.