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February 10, 2001
By
John Tobin
Website:
http://www.re-establish-credit-card.com
>
How to Calculate Credit Card Charges
Do you know how to calculate credit card charges? Some credit cards, such as American Express, require you to pay off all your credit card charges each month. As a benefit, they usually have no finance charge and sometimes, no maximum limit. Most cards, including Visa, MasterCard, Discover and Optima, offer what is known as revolving credit. This means they let you carry a balance, on which they charge interest (finance charges), and they require you to make a minimum payment. The minimum payment is usually about 5 percent of your current balance, or $10 -- whichever is more.
Here are three of the ways financial institutions calculate credit card charges:
- Adjusted balance -- This system, which consumer experts say favors the card holder, can calculate credit card charges by taking the balance from your previous statement, adding new charges, subtracting the payment you made, and then multiplying this number by the monthly interest rate.
- Average daily balance -- This method, which is a pretty even-handed one and the most commonly used, works like this: The company attepmts to calculate credit card charges by tracking your balance day-by-day, adding charges and subtracting payments as they occur. At the end of the period, they calculate credit card charges by taking the average of these daily totals, then multiplying this number by the monthly interest rate.
- Previous balance -- Credit card companies and lending institutions that use this method generally come out ahead, according to consumer experts. They calculate credit card charges by multiplying your previous statement's balance by the monthly interest rate to find the new finance charge (this means you're still being charged interest on your balance a whole period after you've paid it down).
What you pay will vary, depending on your balance, the interest rate and the way your finance charge is calculated. Here are a couple of examples that show how much difference the interest rate can make in what you actually end up paying:
- How to calculate credit card charges for a high-rate card: Suppose you charge $1,000 on a 23.99 percent credit card. After that, you make no further charges and pay only the minimum each month. The payment will start at $51 and slowly work its way down to $10. You'll make 77 payments over the next six years and five months. By then, you will have paid $573.59 in interest for your credit privilege.
- How to calculate credit card charges for low-rate card: If you charge that same $1,000 on a 9.9 percent fixed-rate card, the minimum monthly payment will start at $50.41 and go down to $10. You'll make 17 fewer payments, finishing in six years and paying $176 in interest. This saves you almost $400!
- And don't forget to calculate credit charges that are fairly new to the game -- and now used by virtually all the companies in the last decade or so. They are the late fees and over-the-limit fees now common.
Increasingly, credit card issuers are drastically raising interest rates (to as high as 23.99 percent) after a set number of late payments (read the fine print and make sure you know whether the payment is considered posted on its postmarked date or on the date the bank or credit card company gets it posted). This makes it harder for you to calculate credit card charges. Unfortunately, once you have a couple of late payments, the credit card company can charge you the inflated interest rate for the remaining life of the account (try to avoid this, since all credit card companies report your payment record to credit reporting agencies and even a few late payments could cause you problems when you try to buy a car or a house.)
So now you know a little bit more about how to calculate credit card charges. To learn more, check our article list.
Here's to your credit!
John Tobin
For
more information on calculate credit card charges - click here!
> About The Author:John Tobin is a successful author and the
publisher of http://www.re-establish-credit-card.com. He writes on Downside-Up Marketing at www.online-affiliate-programs.com, and runs the Free Phone Site www.1st-free-internet.com. *Webmasters,
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