Teacher resources and professional development across the curriculum
Teacher professional development and classroom resources across the curriculum
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Know the Terms: How to Manage Your Credit Cards
APRs. Annual fees. Finance charges. What do all these hidden fees mean, and how can you stay on top of them? Credit cards seem to have a language of their own. Once you understand this lingo, you can learn how to save hundreds or even thousands of dollars in unnecessary fees.
The first credit card concept that you should know about is the minimum payment, or the minimum amount you are required to pay each month. The amount of your minimum payment is usually equal to 2% of your average balance due. So if your average daily balance for a certain month is $500, your minimum payment for that month will be $10. This probably sounds like a good deal until you remember that you're also paying interest on that $500. If you're being charged an interest rate of 18% on the balance of $500, that $10 won't make a dent in paying off your balance. This is how most credit card companies make their money. By requiring that you pay only very small amounts each month, they know that it will take you much longer to pay off your debt, and that you'll end up paying a lot more interest over time.
Finance charges are a murky area, since each credit card company can determine its own method of computing these fees. The finance charge is the interest you pay on the money you owe the credit card company. Many companies compute monthly finance charges by determining what your average daily balance was for the month, then charging interest on that average figure. Other credit cards figure finance charges based on the average daily balance plus any new purchases you make. To avoid paying additional finance charges, find a credit card that figures fees based only on your average daily balance for the current monthnot past balances or new purchases. Better yet, pay off your entire balance each month to avoid these fees.
The Annual Percentage Rate (APR) is another important credit card concept. The APR is the finance charge (which can vary month to month) expressed as an annual percentage rate. The APR is normally somewhere between 5% and 21%. One of the things to look for when comparing the APRs offered by two credit card companies is whether the rate is fixed or variable. A variable APR can fluctuate. It might follow the national interest rate, for example. A fixed APR stays the same unless changed in writing by the credit card company. A fixed APR will normally offer the best value over time, especially if you can find a low fixed rate.
You will also need to know what the grace period is for your card. The grace period is the period from when you make a purchase to when the credit card company begins charging you interest for that purchase. Without a grace period, you'll start accumulating interest charges immediately. Your best bet is to find a card with a grace period of 25 days or more and pay off the balance before that period ends.