Many benefits come from owning and using credit cards. However, those who spend more than they can pay back in a month will pay. Carrying a balance on your credit card will end up costing you more in interest than the things you initially purchased. Here is what you should know.
WHAT’S CREDIT CARD INTEREST?
Interest is the fee charged by the credit card company for borrowing money. It’s charged anytime you carry a balance past the due date.
HOW IS INTEREST CALCULATED?
Most people do not know that interest is charged daily, not monthly or yearly. You can determine your daily interest charge by dividing your interest rate by 365 and then multiplying it by your credit card balance. For example, if your interest rate is 19.99%, the daily interest rate will be 0.054%. If you owe $1,000, this translates to roughly $0.55 a day.
Furthermore, some banks compound interest. Compound interest involves the daily interest being added to the next day’s balance, effectively charging interest on the interest already charged.