What to know about credit card APR

( NewsNation ) — Credit card Annual Percentage Rate (APR) is a crucial factor that can significantly impact your financial health as the average amount of credit card debt Americans are carrying is continuing to rise.

What is credit card APR?

Credit card APR , or Annual Percentage Rate, represents the yearly cost of borrowing money on your credit card, expressed as a percentage. This rate includes not only the interest but also other charges associated with the loan. When you carry a balance on your credit card, the APR determines how much extra you’ll pay over time.

Types of credit card APR

1. Variable vs. fixed APR : Most credit cards have variable APRs that can change based on market conditions. Fixed APRs are less common but offer more stability.
2. Different APRs for different transactions : Cards may have separate APRs for purchases, balance transfers and cash advances.
3. Introductory APR offers : Some cards offer low or 0% APR for an introductory period, which can be beneficial if used wisely.

How APR can lead to financial trouble

Understanding APR is crucial to avoid falling into debt traps:

1. Compound interest : Credit card interest compounds daily, meaning you pay interest on interest, accelerating debt growth.
2. Minimum payments trap : Paying only the minimum amount due can lead to years of debt repayment and significant interest costs.
3. High APRs on cash advances : Cash advance APRs are often higher and start accruing immediately without a grace period.

Good vs. bad APRs

While APR ranges can vary based on economic conditions and individual creditworthiness, according to Citizens Bank.

• Excellent APRs : Below 14%
• Good APRs : 14% to 20%
• Average APRs : 20% to 23%
• High APRs : Above 23%

The best APR is often available to those with excellent credit scores. Shop around and compare offers to find the best rates available.

Manage credit card APR

1. Pay in full : The most effective way to avoid interest is to pay your balance in full each month.
2. Improve your credit score : A higher credit score can help you qualify for cards with lower APRs.
3. Negotiate with your issuer : If you have a good payment history, you can try negotiating a lower APR with your credit card company.
4. Consider balance transfers : If you’re carrying high-interest debt, transferring it to a card with a lower or 0% introductory APR can save money, but be aware of transfer fees.

Always read the fine print and choose a card that aligns with your financial habits and goals.

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