Info on Credit Card Debt
Info on Credit card debt: Here’s a primer on credit card debt. Please pay careful attention to the credit card debt information and credit card debt advice here: credit card debt is among the costliest forms of debt, so it should definitely be your first priority to eliminate or even avoid it altogether.
Making sense of your monthly statements
There are some important figures in your monthly statements that you should be aware of:
- Periodic rate – this is the interest rate your balance is subject to everyday (usually less than 0.1%)
- Annual Percentage Rate (APR) – this is the interest rate which most people worry about. It derives from your periodic rate multiplied by 365. Interest rates usually range from 15% to 20%.
- Grace period – this is the number of days you have to pay your balance in full before interest is charged.
Credit Card Debt Advice
Cash advances: be wary of them!
Do you need $1000 in advance? Sure, you can use your credit card to get it from the ATM easily, but interest begins accruing on the cash loan immediately! Even if you were to pay back the $1000 in a few days, you could be in for a shock:
If you have a high balance, banks will usually first apply your payment to the existing balance (which earns a lower interest rate for them). Only a small portion of your payment is actually applied to the cash loan. This means that you will still be responsible for the high daily interest on the cash advance! It could take you several months just to pay back the initial $1000 you borrowed.
Freeze your credit limits
This piece of info on credit card debt may sound counter-intuitive, but think about it: do you notice how your balance tends to settle at your credit limit? Deliberately maintaining a low credit limit helps you discipline your spending – it certainly protects you from the occasional urge to binge spend. Similarly, do not allow banks to increase your credit limit without your permission.
Ask yourself: do you really need that platinum card?
Gold and Platinum cards sometimes mean little more than a higher annual fee. Find out exactly what the extras are before you commit to these more expensive cards. The basic card is usually more than sufficient for all your needs.
Sometimes, you might even be charged higher interest rates in exchange for ‘freebies’ such as first-class travel. Make sure you know how much more you are paying in exchange for what – there is almost always a reason why something is ‘free’!