School is back in session, so it’s time for a pop-quiz.
The subject is: Your Credit Card Statement.
Take out your monthly statement and look it over and try to focus in on all the details. Now, ask yourself if you can answer the following questions in our credit card quiz:
1. What is My Monthly Minimum
HINT: Every month you’re required to pay a monthly minimum on your credit cards. Every credit card uses a different calculation to determine your monthly minimum, but it usually falls between 1 to 2 percent of the total balance plus late fees. Federal law requires that a monthly minimum must allow a consumer to pay down part of their balance, but usually, less than half of your monthly minimum is applied to your balance.
2. I Am Being Charged with Purchase Interest Charges
ANSWER: TRUE / FALSE
HINT: The answer is most likely to be TRUE. Every month your credit card adds a purchase interest charge. This is what your credit card company charges you for carrying a balance; it doesn’t deduct from your current debt.
The charge is calculated by multiplying your current balance by your Annual Percentage Rate (APR) and then dividing by 12.
So, if you are carrying a balance of $5,000 and your APR is 15 percent, your purchase interest charge would be $62.50 a month.
Let’s say you’re paying a monthly minimum of $100 a month. That means that only $37.50 gets applied to paying off your principal.
3. When Does My Annual Fee Get Charged to My Credit Card?
ANSWER: ___ /____ / ____
HINT: Many cards charge an annual fee on the anniversary of when you signed up for the card. These fees can range from $15 to $500. Not every card has them, and often they’re an administrative fee if the card has an awards program. So while you might get some benefit out of the reward’s program, don’t get fooled into thinking it’s free. You pay for the privilege every year.
4. What is My Annual Interest Rate?
HINT: If you look at the top of your credit card statement, you’ll see a lot of helpful information. It will list your balance, recent charges, and the amount you owe for the month. Many cards even include your FICO credit score.
What you won’t see is your interest rate. It is listed on your statement, but it’s probably at the bottom of the last page and in small type. Don’t forget, every year your credit card adds the interest to your balance. Whether it’s added daily or monthly, it adds up.
5. How Much Interest Am I Charged Every Year?
ANSWER: _______________(Balance) X ____________ APR =_______________
HINT: Assuming that you have a $5,000 balance and 15 percent interest, if you didn’t lower that balance after one year, it would become $5,750. Don’t forget, if that balance doesn’t change, the next year it would be $6,612.50.
The fact is, even if you never use a credit card again and pay the monthly minimums, by the time your interest and fees are incorporated, you easily spend 20 years paying off a credit card. In that time, you will have spent almost as much in interest as your original balance.
6. How Can I Get Control of My Credit Card Debt?
HINT: This is a trick question because the answer won’t be found on your statement.
Understanding your credit card debt is the first step, but paying down credit card debt takes time, planning and help.
Looking to ace your next credit card pop-quiz?
Or schedule an appointment by calling DebtHelper.com at 800-920-2262.