Credit Card Health Check Are You Paying too Much Credit Card Interest?
Posted April 11th, 2010 and last modified May 18th, 2011How Much is Too Much Credit Card Interest?
If you’ve held a credit card debt for some time and are having trouble reducing the amount you owe, then you could be paying too much credit card interest. This is especially true if you’ve held the same balance on the same old card for a while now, as you’re likely to be paying high interest rates that would usually be charged on purchases or cash advances.
It’s possible to reduce the amount of interest you pay on your credit card debts, which can then make it much easier for you to begin repaying your balance far more quickly.
Checking Your Credit Card Interest
When asked directly, a surprisingly large number of Australians have no idea how much they pay in credit card interest. With rates as high as 20% on some credit cards, this is an alarming trend, especially as many customers seem to simply make the minimum repayment and not question whether they’re paying too much or not.
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If you find you’re constantly struggling to keep up with repayments and never seem to be able to reduce your debt balance, then it’s important you look for ways that could lower the amount you pay in credit card interest. This can help you begin to regain some control over your financial situation.
Being Charged Interest on Credit Card Interest
As though paying high interest on credit card debt wasn’t difficult enough for many families, banks have managed to make it even more difficult for struggling customers to reduce credit card debt levels.
Take a close look at your last credit card statement and you should notice that the amount of interest you were charged on your account was capitalized, or added, onto your outstanding balance. While this isn’t news to many credit card holders, it can have some severe repercussions on the amount of credit card interest you will end up paying in the longer term.
While your balance has increased by the amount of interest charged, you might think the repayment you make will then reduce this charge by the same amount of money.
Unfortunately, you might not make your next payment for almost a month, which means you could be paying interest on the interest you were charged.
Credit card interest charges are calculated daily on the outstanding balance and shown in arrears on your statement as a total figure at the end of the month. If you have done nothing to reduce the amount your balance was increased by during this time, then you may be paying far more interest than you think.
Penalty Interest Charges
On top of this problem, many customers have been charged penalty interest rates and over-limit fees on interest they were charged. This happens when the interest charged to credit card accounts has been capitalized onto the balance and it then takes the amount outstanding over the approved credit limit.
Not only will you be paying interest on the interest you were just charged by your bank, but you may also be up for penalty interest rates and over-limit fees as well.
Reduce Credit Card Interest
There are several simple things you can do to reduce the amount of credit card interest you pay, the easiest of which is to compare other credit card offers to see if you can find a better deal. However, before you can begin to fix a situation, it’s important to recognise that there’s a problem in the first place.
How Balance Transfers Can Save You From too Much Credit Card Interest
If you’re currently paying too much credit card interest on your outstanding balance, then you might be able to benefit from a balance transfer credit card.
Many lenders offer seriously discounted interest rates for introductory periods to help customers reduce the amount of interest they’re paying. When you roll your balance over to a balance transfer card, you could be paying as little as 0% interest for 6 months on the amounts you owe.
This can reduce your interest charges significantly for those initial six months. If you’re diligent about putting your interest savings towards your outstanding debt each month, you should notice you can chip away at your balance very quickly before the interest rate reverts to the higher rate.
Long Term or Short Term
Most lenders offer either long term or short term balance transfer deals. If you realistically think you can repay the entire balance of your credit card debt within 6 months, then a short term 0% interest option might be right for you.
However, if you know it will take you longer than this to clear all of your balances, then you might consider a long term balance transfer deal. Some lenders will offer very low rates that last for however long it takes you to pay down that debt.
Regardless of which option you choose, there are ways to avoid having to pay too much credit card interest so you can take back control of your financial situation once again.
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