June 19, 2006
Credit Rewards Vs. Interest Payments
My last 2 posting spoke about the awesome benefits of being a rewards cardholder however I realized that I neglected to mention to account for interest costs associated with your credit card.
Credit card rewards programs are really best suited for people who pay off the entire balance owing each month as the cost of interest can offset the earnings you achieve.
Before you drop your current credit card and apply for a rewards card check the interest rate you are getting versus the interest rate of the reward card. If there is a huge difference in interest and you carry a balance it may be cheaper for you to stick with the credit card you already have and pay for a vacation.
When comparing interest rates make sure you look at the ongoing rate and not the introductory rate. Almost every credit card will have a short term low interest rate, typically three to six months and after the introductory period the rate will increase significantly. It is the ongoing rate you need to concern yourself with as this will be what you will pay in just a few short months.
Posted by Colin at 01:37 PM | Permalink | Comments (0) | TrackBacks (0)April 21, 2006
The Hidden Interest Charge
Interest is typically calculated on a daily basis if your account has an outstanding balance. Interest calculations begin on transactions the day the transaction is posted to your account, usually within a few days of having made the purchase. However, if you pay the total balance indicated on your statement on or before the due date, no interest will be charged.
Marnie Worldman charged $1,000 on her credit card last month. She paid her balance in full by her payment due date, so she was not charged any interest. Her sister Deborah also charged $1,000 last month. However, Deborah made a partial payment of $400 on the due date so:
She was still charged interest on the full $1,000 up to the day the $400 was credited, since she had not completely paid off her balance
The remaining balance of $600 became the "retail revolving balance," which would continue to accrue interest until it was repaid.
Even through Deborah paid off $400 by the due date, she was still charged interest on the total $1,000 up until the date the $400 payment was made. That's because when you make only a partial payment, you are charged interest on the total balance. The only way to avoid paying any interest is to pay off your balance in full every month.