Credit Card Interest Rate Trap You Must Be Aware Of

Unless you pay your credit card balances in full each month, you are paying a credit card interest rate on the money you owe your provider. This is called the Annual Percentage Rate (APR), and your credit card may have several APRs, including one for each of the following:

1. Purchases, cash advances and balance transfers

2. Different APR rates depending on the total of your balance

3. A penalty APR – if you pay your bill late

4. An APR that kicks in later – like when you purchase something where there is no interest until a certain date

The APR can be either fixed – which means you will pay the same annual rate all the time (like a fixed rate mortgage), or variable, which increases or decreases over time, usually as a result of a change in the prime rate.

The Minimum Payment Trap

Making the minimum payment each month actually hurts you and rewards your credit card company. When you make the minimum payment, you are only paying back a portion of the APR interest that you owe – therefore you are not making a dent in the actual balance on your card.

Getting Rid of Expensive Debt

If you are focused on lowering your debt, and you have more than one credit card, it is recommended that you pay the minimum balance on all the cards, except for the one with the highest interest rate; instead, focus on paying that one down first.

Then once it is paid off, you can then apply the amount you were paying to the credit card with the next highest interest rate. This ensures that you are getting rid of your most expensive debt first.

You can also negotiate with your credit card providers to charge you a lower credit card interest rate. You can simply phone your credit card company and ask for a lower interest rate- most providers will instantly give you a lower rate to avoid losing you as a loyal customer.