How Credit Card Interest Works (Credit Cards Part 2/3)

caption redick card interest is among those things that get a great deal of us in trouble economically however yet many of us wear'' t precisely know how it'' s working it ' s not extremely complex however it is a little trickier than you might believe and I'' ll start by saying that you won'' t be paying any interest on your credit cards as long as you settle your declaration balance completely by the due date on a monthly basis and if you don'' t truly understand what a declaration balances then enjoy this video on charge card for beginners so if you do end up carrying a balance on your charge card this is how the interest works every credit card has an interest rate that'' s typically around twelve to twenty 5 percent in interest and for these examples I'' ll simply be utilizing a card that ' s charging twenty percent in interest annually and now for the fun part so let'' s say that you didn'' t pay off your statement balance in full and you now have a balance of$ 1,000 on your charge card well due to the fact that you didn'' t pay off the declaration balance in complete now you ' ve opened the can of worms for your credit card to make this example actually easy I'' m simply gon na start the billing cycle at the beginning of the month and we'' ll simply have a few deals to make the math truly simple to understand so follow me here on June 1st you owe $1,000 on your charge card on June 10th you spend $100 and on June 20th you invest $400 on your credit card the majority of us most likely spend about every day however I'' m just trying to make this simple to follow along and now on the last day of June on June 30th you invest another hundred dollars on that credit card so now your total quantity for the statement balance is gon na be 1600 dollars credit card interest works on what'' s called the typical everyday balance technique and this is how it works you'' re gon na take each day ' s total balance for that month and include them entirely so follow me here day 1 through 9 was $1,000 each day the 10th through the 19th was $1100 a day the 20th through the 29th was 1,500 and then you had the extremely last day at $1,600 now include these all up and you'' ll get the number 34,000 now divide that by 30 due to the fact that there'' s 30 days in'June we ' ve now got a typical day-to-day balance of eleven hundred and thirty 3 dollars now that we'' ve got our average daily balance figured out we simply need to determine how much interest we'' re gon na be charged for that quantity of cash so remember that we'' re simply going to be using a 20 percent rate of interest whatever your real interest rate is that'' s certainly the number you wish to be plugging into this formula so take that 20% and divide it by 365 the number of days in a year we'' ve now got the everyday rates of interest charge on our calculator now simply take that day-to-day rate and times it by the 30 days looks like we'' ve got a one point 6 two percent interest rate for that month now lastly take the one point 6 two percent rates of interest and times it by your average day-to-day balance there you go eighteen dollars and thirty 5 cents is what you'' re gon na be charged for that month and interest hopefully you followed together with this since that'' s the most convenient manner in which I can discuss credit card interest and remember that you'' ll actually pay less an interest if you can keep that average day-to-day balance as low as possible pay down your credit card throughout the month to keep it as low as you can and try making your big purchases at the end of the month but truly try to make it a goal to get that statement balance paid off in full every month so that you never need to pay any interest on your credit cards I'' m Jason with the truthful financing channel if you did discover this information valuable do not hesitate to subscribe to my channel or at least offer the video alike that'' s allAs discovered on YouTube – Creative Commons License

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License: Creative Commons