America is a nation of people in debt and the majority of those people have credit card debt. The nation as a whole has a revolving credit debt of $827 billion currently with a large portion of that being with the credit card industry. For some consumers, eliminating that debt seems to be a never-ending task. Much of this is because consumers aren’t fully aware of the way their credit card rates truly work.
Many people have spent years looking for the best rates because that is what they are told to do. But consumers as a whole do not understand how these rates work or what impact they may have on them as individuals. In order to truly succeed at lowering credit card debt and keeping credit scores high, consumers need to understand a few simple things about their credit card rates.
Many consumers aren’t even sure what an interest rate or APR is. This is annual percentage rate that the issuer charges a consumer on any loan or balance on a credit card. This rate will vary greatly by card and by offer. In some instances consumers are offered special deals with introductory rates that increase after an amount of time. Some interest rates change based on the service used. The company is the one who sets this rate and they will often base your interest rate on how good your credit score is.
When it comes to APR you will find that you have one of two kinds. Your rate is either fixed or variable. If it is fixed it generally does not change. That’s not to say it won’t. If you pay the bill late or the company lets you know they plan to change it, you will see an increase. But it can’t just change from day to day randomly. More companies go with variable rates. These are based on the prime rate that is charged to corporations. This rate changes whenever the Federal Reserved alters their Federal Funds Rate, among other times. Check out the fine print of your terms with your credit card for a section that says prime rate plus some percentage. This will be your rate.
The key to never having to pay interest is never having a balance on your card. If you pay off your card every month then you will never pay a dime of interest to the bank. The interest begins to add up once your balance has been active for at least one billing cycle. There are zero interest cards but generally it’s an introductory rate and will change in a set time frame.
Interest rates are different for different things with most companies. If you buy something you will get a different rate than if you take a cash advance. You also tend to get a higher rate for late payments. Another popular reason for changes to your rate is that your introductory rate expired and you are now on a new rate.
Interest pays a huge role in your payments. The higher your interest rate the less you are actually paying off on your debt. When interest adds up you end up merely paying for interest and never reducing or eliminating the credit card debt itself. The lower your interest rate, the more money you save in the long run.
If you keep your credit score high you can negotiate a lower rate with your issuer. Oftentimes the bank will work with someone with a positive credit history to offer them rates that help keep their business.
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