Tag Archives: credit card
Understanding Payment Calculations For Your Credit Card
To have a proper understanding of your credit card statement you usually need to understand the terms and jargons used on it.
The following are some useful terms that can be referenced when attempting to understand you credit card bill.
Due Amount – This is the minimum payment due per month and not the total amount due on the card.
Annual Percentage Rate – This refers to the rate of interest charged annually as a percentage.
Cash Advance – This is a loan in the form of cash that is made with the card. You can get this loan with the help of your card at any bank or ATM. Most cards charge a fee for this cash advance as a percentage of the amount borrowed. Usually the cards do not have a grace period and so interest is charged from the day you take the loan and till the day you repay the cash advance. It does not matter whether you have an outstanding balance on your card or not. These rates are pretty high. So you need to check on it before you take any cash advance.
Date Due – This is the date by which you must send in your payment to be in the good books of the company.
Grace Period – It is the period in which you can make purchases on the card without having to pay an interest. It is not that all card companies allow grace period. To take advantage of a grace period, you must pay your bills totally every month by the due date. But keep in mind that if you have any previous balance outstanding, you will lose the advantage of having a grace period on purchases made in the current month. If you use a card having no grace period, the bank charges you interest from the day the purchase is made. You cannot, in any way, avoid paying interest on the purchases made through the credit card.
Not all credit cards have a grace period. When you use a card with no grace period, the bank begins charging you interest on the day the purchase is made or the day it is recorded (posted) on your account, depending on the bank’s policy. When a credit card does not have a grace period, there is no way to avoid paying interest on your purchases. A credit card allowing you grace period will not charge any interest on the card usage until the next cycle of billing. In fact, you would not have to pay any interest at all if you pay your total balance during the grace period of the cycle.
Late Fee – The charge that is attached to the card after the due date expires.
Minimum Monthly Payment – The least amount that you would need to pay to avoid being considered a defaulter. This is usually the most expensive way to make a payment for a credit card. Most card companies encourage you to make a minimum payment every month and let the rest accrue. This way it can take years for you to pay off your debts. Also you land up paying three times the amount. But if you do not pay anything or pay less than the minimum amount, you will accrue a late fee. Additionally, you will have a negative credit report.
New Balance – The sum payable after new costs and credits have been added up.
There are three techniques used to determine the interest rate of credit card interest. The average daily balance method, calculates the interest to be charged on your card based on the every day balance during the billing period, minus the payments received, and then divides it by the number of days in the billing period.
As per the previous balance method, the interest is calculated on the amount payable at the end of the last billing cycle. In adjusted balance method, the interest is calculated by deducting all the payments made throughout the present billing period from the final balance that was due from the last billing period.
Quick Loan, Quick Death
Many people find themselves up to their necks in the mud, well
actually debt, and fear a loan because they do not know about these matters or because they think it is a complicated procedure or because they will irreversibly be turned down. All they have is a credit card which is their last resource and it is already up to the brim: Recipe for disaster.
When you begin to feel the rope tightening round your neck, you start to panic. You see a notice, a poster or an ad in a paper that says, Get Cash Now! You investigate and you find out that you can leave the place in a matter of minutes with the cash in your pocket.
Your Credit Card
All they have done is to sell you a pocketful of cash and charged it to your credit card. Double mistake: The first one, to go to these vultures who speculate with your panic. The second, charge a loan to your credit card. However low the interest rate is, it will never be under 18%. Add to that, the fee the lender charged you and you are in for a blazing inferno in no time.
Unsecured Loans
Even if you do not have any property or valuable item to provide as a security, there certainly are unsecured loans in the market and they are not at all expensive. If you compare it with the credit card interest and, in this case, plus the fee, an unsecured loan is dirt cheap. The highest rate you could have to pay is 10%. (And no fee)
Back To The Same Old Story
Credit card debt, as we all know, is terrible when your income will only allow you to make the minimum payments. They go on and on forever and as the song goes, You are one day older and deeper in debt. Then, you end up owing your soul to the credit card company.
The Solution
The only solution to a serious debt situation is to forget about credit cards and take to a recognized lender for a proper loan. It will always be lighter on your monthly budget, with a longer term to repay and a normal interest rate. Whether secured or unsecured, personal loans usually have a three year plan, which is quite healthy and your monthly installments will be low enough to keep you on the safe side.
Other Measures
Some complementary measures must be taken as well, to help alleviate the situation. The first is to reduce spending. If you have a very packed credit card, which is why you had to resort to the unfair loan, put it away and do not use it at all until you are free of debt.
With the loan you will be paying it off, but you need to get used to spending less.
Increase Income
Each time you have to take cash out of your wallet, you will feel as if you were losing a part of your own self and you will think twice before spending on something that is not really necessary. This kind of action should also be accompanied by serious efforts to increase your income.
Get all the family involved. Children and adolescents should contribute, if not with a job, at least with the decrease in spending. They also benefit from the good times, do not they?