Today, credit cards are an essential component of financial management. You can make the best of your financial situation by leveraging the various benefits offered by credit cards.
While the practice of using a credit card is simple, there are few details governing the credit game that can lead to huge consequences if ignored. By gaining a clear understanding of how a credit card works, you can maximize it to its full potential and avoid hefty fines.
Let’s shed some light on the most common questions about credit card debt and understand the basics of credit card debt relief.
APR: What is it, and How Does it Work?
APR stands for annual percentage rate. In short, it’s the price you pay for borrowing money, and it’s how most creditors make their earnings on money lent. APR may be expressed as an annual rate, but credit card companies use it to calculate daily interest charges, which are then billed monthly.
Calculate your daily interest rate by dividing your APR by 365 to find out how much interest you’ll pay on your balance each day. You are charged daily interest by the credit card company based on the current balance on your account. You will then be charged interest the next day on your balance.
As an example, consider a credit card with a 12% interest rate. You would pay a daily rate of 0.032%. An interest charge of $0.16 would apply if your card balance today is $500.
There will be a $0.16 charge every day (or more if your balance increases) until the end of your monthly statement period.
How Do Credit Card Rewards Work?
Credit card rewards can be enticing, especially if the offer is too good to decline. However, instead of becoming distracted by the numbers, you must consider what card is actually most suitable for you based on your needs.
Take a look at the types of rewards available to you to decide which is best for your credit usage. Don’t forget to check the annual fee on your card. There are many rewards cards that come with heavy fees that aren’t always worth the additional charges. In exchange for a $100 annual fee, a few credit cards offer a free $200 hotel night.
Does it Hurt My Credit to Pay in Full?
It is a common misconception that paying your credit card in full every month may harm your credit score. A good credit score is thought to be obtained by carrying some debt.
This isn’t always the case. Credit card companies do not report any kind of balance if a credit card balance is paid before the billing cycle is over. People often get confused with this notion when they pay their credit card balance before the billing cycle is over.
You will not be charged at the end of the month if you make purchases of $500 on your credit card and pay them off immediately. If you want to pay your bill in full, wait until it is the end of the billing cycle.
How Many Credit Cards Should I Have?
You don’t necessarily need to have more than one credit card to maintain a good credit score. However, having too many recent credit cards can negatively affect your credit score. Each account’s average age affects your credit score as well. Extensive credit history will be harder to attain if you have a lot of credit cards.
The most important thing to remember here is variety. Having five new credit cards opened in the last six months is more likely to affect your score than just opening a new card. The goal is to be seen as someone who responsibly uses credit cards rather than someone who continuously opens new cards.
Should I Read The Small Print?
The fine print should be read carefully. The APR on your credit card can change whenever the issuer feels like it, so your rate can skyrocket without you even realizing it. The majority of lenders also charge a separate late fee when you have a late payment, along with interest on the amount you owe. Late payments on a different credit card or loan can also affect your APR.
Is a Higher Credit Limit Better?
In this case, bigger really is better. Having a small credit limit increases your chances of spending up to the limit each month. As a result, your credit utilization percentage will be affected, which measures how much of your credit limit is being used. This percentage partially determines your credit score – if it exceeds 30%, your score will be negatively affected.
If you are still spending close to your credit limit, then a high credit limit is irrelevant. You are less likely to reach 30% of your credit limit if your credit limit is higher.
What About a Balance Transfer of 0%?
Those who are drowning in high-interest credit card debt may benefit from a balance transfer. A balance transfer to a zero percent interest transfer could save you hundreds, but only if you use that opportunity to pay the debt off.
How much time does the zero percent interest window offer you to pay it off? Take into account the interest rate that will kick in if you continue to carry a balance after that period. Are the numbers in your favor when you use a loan calculator?
Often, balance transfers come with additional fees that are worth it only if you are able to get a better interest rate. Be diligent about paying off your credit cards on time if you miss a payment or are late – some companies cancel interest-free periods if you miss a payment or are late.
Debt Settlement During the Recession
Credit card debt can also be reduced in another way: debt settlement through a debt relief expert. A variety of debt settlement programs can help you reduce your debt, but you can also build a debt management plan tailored to your financial situation.
You may be able to overcome expensive credit card debt by consulting with a debt settlement company like Alleviate Financial.
Rather than letting credit card debt spiral out of control, we can help you strategize a debt consolidation loan before it gets worse.
With a financial plan in place and the first steps taken, even if they’re small, your credit score will be able to weather the storm and remain intact. Schedule your debt relief consultation with Alleviate Financial’s debt specialists today!
