Understanding Payment Calculations For Your Credit Card
To have a proper understanding of your credit card
statement you usually need to understand the terms and
jargons used on it.
 
The following are some useful terms that can be referenced
when attempting to understand you credit card bill.
 
Due Amount - This is the minimum payment due per month and
not the total amount due on the card.
 
Annual Percentage Rate - This refers to the rate of
interest charged annually as a percentage.
 
Cash Advance - This is a loan in the form of cash that is
made with the card. You can get this loan with the help of
your card at any bank or ATM. Most cards charge a fee for
this cash advance as a percentage of the amount borrowed.
Usually the cards do not have a grace period and so
interest is charged from the day you take the loan and till
the day you repay the cash advance. It does not matter
whether you have an outstanding balance on your card or
not. These rates are pretty high. So you need to check on
it before you take any cash advance.
 
Date Due - This is the date by which you must send in your
payment to be in the good books of the company.
 
Grace Period - It is the period in which you can make
purchases on the card without having to pay an interest. It
is not that all card companies allow grace period. To take
advantage of a grace period, you must pay your bills
totally every month by the due date. But keep in mind that
if you have any previous balance outstanding, you will lose
the advantage of having a grace period on purchases made in
the current month. If you use a card having no grace
period, the bank charges you interest from the day the
purchase is made. You cannot, in any way, avoid paying
interest on the purchases made through the credit card.
 
Not all credit cards have a grace period. When you use a
card with no grace period, the bank begins charging you
interest on the day the purchase is made or the day it is
recorded (posted) on your account, depending on the bank's
policy. When a credit card does not have a grace period,
there is no way to avoid paying interest on your purchases.
A credit card allowing you grace period will not charge any
interest on the card usage until the next cycle of billing.
In fact, you would not have to pay any interest at all if
you pay your total balance during the grace period of the
cycle.
 
Late Fee - The charge that is attached to the card after
the due date expires.
 
Minimum Monthly Payment - The least amount that you would
need to pay to avoid being considered a defaulter. This is
usually the most expensive way to make a payment for a
credit card. Most card companies encourage you to make a
minimum payment every month and let the rest accrue. This
way it can take years for you to pay off your debts. Also
you land up paying three times the amount. But if you do
not pay anything or pay less than the minimum amount, you
will accrue a late fee. Additionally, you will have a
negative credit report.
 
New Balance - The sum payable after new costs and credits
have been added up.
 
There are three techniques used to determine the interest
rate of credit card interest. The average daily balance
method, calculates the interest to be charged on your card
based on the every day balance during the billing period,
minus the payments received, and then divides it by the
number of days in the billing period.
 
As per the previous balance method, the interest is
calculated on the amount payable at the end of the last
billing cycle. In adjusted balance method, the interest is
calculated by deducting all the payments made throughout
the present billing period from the final balance that was
due from the last billing period.
 
 
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