Oh, I know, sounds boring right? I used to think so, too…and then I started paying more of my own bills. YEP, it’s NOT SO BORING NOW, right? True. For those of you who are new to my blog, my last post was about how to start the process of improving your credit score. As a disclaimer: I am not a financial adviser, and these are simply my musings about what has worked for my own situation. Each individual financial setup is different, so for your own changes I recommend that you meet with a banker or someone in that field. I would simply like to share my knowledge with you. Along the way I hope to present this to you in a personable and slightly more fun way than your traditional financial sources. We’ll see if I’m successful! Feel free to comment below and ask any questions you might have.
Last time I left off while writing about throwing money down the toilet, right? Interest. Interest is how banks make money on top of the money they’ve loaned you. They wouldn’t be able to do it without interest. They need to fund their establishment, too, and interest is one of the ways that they do that. Interest can come in all sizes. And it is worth it to understand how interest will effect you in five, ten, or however many years in the future.
When you apply for a credit card you will see that banks are going to entice you into applying for their products. Side note: be careful how many credit cards you apply for. Applying for too many credit cards negatively effects your credit score. The bank will promote their company by advertising APR’s. APR’s (annual percentage rates) can start as low as 0.00% when a credit company is trying to gain your business. This is great! It means that for however long that offer is valid you will not be charged interest on the balance of your account! AWESOME! But…be careful. There’s a catch. After that introductory period ends you will be responsible for the interest that starts to accrue on the balance that you have borrowed. That money does not go toward the original amount that you borrowed. It goes directly to the bank for having gained your business. Soooo…you are paying the bank for having given you a loan and then paying that loan back in full afterwards. Interest rates can tack on quite a large amount to the bill you already owe. Several years ago, I took a good, long look at my credit statements…and I was SHOCKED to find out that I was paying the bank $40 per month that went into their pockets and less was going toward actually paying down my loan balance. As you can see, interest can become quite a hefty bill…but there is a way to avoid it!
The first thing to realize is that the bank can not charge you interest if there is nothing to charge interest to. This is possible if you make sure to pay your balance in full every single month. It sounds very simple, but it can take self discipline to stick to this. If, like me, you’ve not always had the best financial habits, there are ways to improve your situation….
Now enters the next option for those of us already down the rabbit hole…APR transfers! For now I will leave you to digest the information about credit that I’ve written about, but very shortly I will communicate about APR transfers and what good they can do for those of us already down the rabbit hole of paying off our credit burden.
So…I hope that today you have learned something helpful and not the hard way, like I have. I’m sure it was quite a comical scene when I figured out (in public) just how credit card interest really works. Ciao for now and here’s to awesome financial habits!