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The APR matters - work & wealth - credit card annual percentage rate - Brief Article
Quick quiz! What's the annual percentage rate (APR) on your credit cards, and why do your purchases cost less if you pay more than the minimum?
Answer: The APR lets you know how much you must pay to borrow money for your credit-card purchases. When you buy something, the credit-card issuer pays the merchant on your behalf. And you must repay the full amount by a certain date or pay a finance charge, which is determined by the APR--a preset percentage rate listed on your bills. Let's say the APR on your credit card is 18 percent, and you buy a computer for $750. If you pay only the minimum when you get the bill, you'll be charged 1.5 percent interest if the APR is calculated on a monthly basis (18 divided by 12 equals 1.5). When your next bill comes, assuming you made a $15 payment and didn't buy anything else on the card, you'll see that $11.25 was applied to the finance charge and $3.75 reduced your debt of $750 to $746.25, explains Toby Garcia, a unit manager with Discover Card's customer service.
If you make only the minimum payment each month, you'll end up paying almost twice as much for the computer, and it will take you more than seven years because most of the money will go toward paying the finance charge. That's why it's wise to pay off credit-card purchases as quickly as possible or transfer balances to a card with a lower APR. If you're over your head in debt, talk to counselors at the National Foundation for Credit Counseling at (800) 388-2227.
COPYRIGHT 2002 Essence Communications, Inc.
COPYRIGHT 2002 Gale Group
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