All credit card companies charge interest, but it is not until the close of the billing cycle that interest is applied to the principal balance. You might want to start calculating your credit card interest payments when your principal isn’t going down despite making more the minimum payments due each month, or simply to ensure that your credit card company is applying the right interest rate. If you want to calculate your interest payments accurately, you will need to know what day your billing cycle ends on.
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Credit card interest payments only become applicable after the billing cycle in which they were made closes, and the new billing period begins. Most credit card companies use an interest rate calculation system called APR, which shows how much interest the current charges will accumulate in a year.
Why do credit card interest rate payments fluctuate?
Even if the APR on a consumer’s credit card never changes, several factors can make each monthly interest payment higher or lower. The interest payments listed on each monthly credit card statement show the minimum amount that can be paid as determined by the credit card company. Should you decide to pay a higher amount, or fail to make the minimum payment, your credit card interest payment for the next month would be altered.
Credit card companies also have the option of changing interest rates, especially on consumer accounts that have a variable APR. If you utilize most of your credit limit, make a sizable onetime payment or breech your credit card agreement due to lack of payment, your interest rate may go up. Some companies even have a default interest rate that is applied to accounts that are severely delinquent.
Due to the Federal Trade Commission updating the Truth in Lending Act, credit card companies must bill cardholders consistently on the same day of the month. This can help you to figure out when interest payments are due as well how much you will pay in interest before your next billing statement is sent out. Typically, credit card billing cycles range anywhere from 25 to 30 days, with the interest payments being due within a few days of the start of the next billing period. You can avoid being charged any interest if you always maintain a zero balance by paying the entire amount before it becomes due.
How can I reduce my credit card interest payments?
You can reduce your credit card interest payments by either requesting a lower interest rate or by making payments that are larger than the minimum amount due every month. You can also lower your credit card interest payments by not making any more charges. If you make payments to your credit card companies each month but you still use them to pay your expenses, it will be very difficult for you to get out of debt.
Asking a credit card company to voluntarily reduce your interest rate should only be done when you have a good chance of getting a favorable answer. If you are currently behind on payments or just opened a few new credit cards, you will likely find that your credit score will not be high enough to be approved for a credit card interest rate reduction.
If you have already stopped making payments on your credit card, you can ask your credit card company if there are any hardship programs available that would enable you to have your interest payments reduced. Your credit card interest payments may also change if you get a cash advance, are charged a foreign transaction fee, or transfer a balance at a different interest rate.
Can you prevent your credit card interest payments from increasing?
Even if you take plenty of precautions, you can find your credit card interest payments increasing. According to an article posted by the Better Business Bureau, credit card interest rates are still on the rise even though more consumers are choosing to close their accounts and lock in lower rates rather than accepting arbitrary hikes. If you have several credit cards, having one company raise your interest rate can result in a domino effect.
Working with smaller banks and credit unions is one of way reducing your chances of having your credit card interest rates go up. Some banks regularly advertise the fact that their credit card interest rates have not gone up in several years.
If your credit card company plans on increasing your interest payments, and you believe that the increase would put you in a financially difficult place, you should ask to have your account closed. This gives your credit card company the chance to negotiate with you to keep the account open while giving you the opportunity to pay down your debt and ask to have your account re-opened in the future.
Use this online credit card comparison tool to see how much you will pay in interest!