Credit Card Calculator

When making any deal, you should make sure you know the terms and read the fine print. Credit card agreements have a lot of fine print, and the APR, or annual percentage rate, is a big part of it.

The APR reflects how much interest you’ll pay each year. Because using your credit card is like taking out a loan, interest is charged for each transaction you make if you take longer than a month or the grace period specified by your card to pay the transaction off. Credit card companies make their profits from APR and other fees and penalties. Without these charges the credit card companies would only be making interest free loans — not a great way to turn a profit.

At its heart, the APR is how much interest making a transaction via credit card will cost you. If an item you purchase remains unpaid for on your credit card for one year, you will pay the APR amount extra for that item. For example, a 9 percent APR will add nine cents to every dollar you charge to your credit card.

If you don’t pay off the amount you’ve charged to your credit card each month, the APR can have a considerable impact on how much money you pay your credit card company for using their money to make purchases.

Credit history

APR can vary anywhere from three to 30 percent. The APR rate on your credit card is largely determined by your credit rating. Your credit rating is based on your credit history, that is your history of paying back money you’ve borrowed and your overall debt load. Folks with bad credit are less likely to get credit cards with low APR. However, if someone with bad credit can obtain a credit card and successfully make payments and avoid delinquencies, over time they can see their APR lowered, or they can qualify for other cards with more attractive rates.

How it works

For example, let’s say that you have a $2,000 balance on a credit card that only charges you a minimum monthly payment of $40. While you can afford that monthly payment, it will take you a considerable amount of time to pay off that credit card balance. With an APR of 15 percent, if you only make the minimum monthly payment it will take you more than six years to pay off your credit card, and you’re likely to pay more than $1,000 in interest over that time. All in all, you’ve paid more than $3,000 for $2,000 worth of goods, services or whatever you purchased with your card. If you’re late with a payment, or if your card has annual fees, the amount you pay your credit card company could increase any more.

If you have a good credit history, and find a card with a more attractive rate, the amount you’ll pay your credit card company will be less. For example, if you secure a credit card with an APR of seven percent, and charge $2,000 to the card, you’ll pay off that amount in about five years if you make minimum payments and only pay about $400 in interest charges.

In most cases, however, credit card holders don’t just make one transaction and stop there. As you pay off your card, chances are that you’ll make more purchases, and thus add more debt — and more interest charges.

Cash advances, checks

Another portion of your credit card agreement you need to be aware of before signing up are the credit card companies policies regarding changing APR. Late payments, defaults and other events may result in your credit card company jacking up the APR on your card. Some credit card companies have even increased rates if you fall behind on payments on other debts. You should also be aware of the APR for cash advances or checks written from the credit card account. Most credit card companies charge different — usually higher — APRs for cash advances and checks.

When obtaining a credit card, customers should carefully read the information regarding the card’s APR, and understand how much interest they’ll be paying on purchases they make. They should also make sure to understand any changes to introductory APR rates that may occur in the future. Due diligence on the cardholder’s part can potentially save him or her thousands in interest over time.

Credit card debt is becoming an increasingly stressful financial matter for American families. High unemployment, a seemingly bleak economic outlook and other bills have pushed many credit card holders into default, incurring higher penalty interest rates, along with delinquent and over-the-limit fees.

A reliable credit card calculator can help you determine where you stand with regard to your credit card debt, and what’s the best plan for you to repay the debt and get the credit card companies off your back and out of your pocket.

The average American household carries about $8,000 in credit card debt, and chargeoffs, that is credit card debts written off by creditors because of non-payment, have climbed in the last two years over the course of the severe economic recession the world currently faces. The credit card burden faced by many families has them considering drastic action to discharge the debt such as bankruptcy.

Still others are choosing to rapidly repay their debt, pumping every spare penny into discharging the debt they owe to credit card companies. To make a good decision concerning how best to proceed concerning repayment of your credit card debt, you should find a reliable credit card calculator.

A good credit card calculator will help your determine how long it will take to repay your credit card debt dependent on the payment and interest information you plug into it.

Credit card calculators use mathematical functions to determine the repayment period dependent upon your interest rate, balance and how much you’ll be paying each month. Some calculators can even determine your length of repayment if you use a graduated repayment plan, that is a plan where over time you increase your credit card contribution.

There are a variety of good credit card calculators on the Internet, such as those offered at www.bankrate.com and by the Federal Reserve at http://www.federalreserve.gov/creditcardcalculator. Your credit card company may also offer a credit card calculator on their Web site. Many credit card companies offer these calculators to help their clients manage their credit more responsibly. It is in credit card companies’ best interest to help cardholders manage their credit responsibly, because of the costs involved with collecting or writing off bad credit card debt.

Once you use the calculator to determine how long it will take to pay off your credit card, and how much it will take to do so, you may want to consider other options for repayment other than just sticking with your current credit card company. You may transfer your balance to another card with a lower interest rate. This is especially a good idea for cards that offer a 0 percent interest rate introductory offer. If you can pay off your debt in this time, you can avoid paying the high interest rates that may be associated with your current card. You will likely be charged a balance transfer transaction fee, but in general these fees are minimal.

Another option is taking out a bank loan to pay off your debt. Bank loans tend to have lower interest rates than credit card debt. The success of both of these plans is dependent upon you not charging further purchase to your card and making the payments necessary to lower your debt.

Finding a way to pay off your credit card debt is far preferable to declaring bankruptcy to discharge your debts. A bankruptcy won’t necessarily get rid of all your debt, will cost you in attorney’s fees and court costs, and will stay on your credit record for seven to 10 years. Lenders look at bankruptcy very negatively and if you have a bankruptcy on your credit report, you will have a tougher time getting anyone to lend you money or issue you a new credit card. Even if you do manage to secure a loan or obtain a credit card, you’ll be saddled with higher than normal interest rates and may have to pay other fees because you are considered a poor credit risk.

That’s why it’s so essential to establish a feasible, doable credit card repayment plan that’s supported by solid numbers. Using an online credit card calculator to determine how much you need to pay each month, and how long it will take to repay the debt.

Credit card debt is a serious problem for many American families, but once you get your arms around the problem and have solid information to back your financial plans, you can begin work to knock out your debt in the most efficient, effective and comfortable means possible.