Misterpopo - The Financial Expert

Credit cards offer individuals the ability to extend their purchases beyond their current financial limitations. With proper money management and budgeting, credit cards can be helpful. For those in debt, credit cards and unrestrained purchases can drive this debt spiraling out of control. Calculating credit card monthly payments to determine how much you will owe each month will help you take control of your budget.

The amount of a monthly credit card payment is usually set at $10 or $15, or as a proportion of the balance you owe, whichever is greater. If the interest rate on the card is high, the proportion of the balance you’ll have to pay each month will be larger. A monthly credit card payment has two components: the monthly finance charge and the amount applied to the principal.

Locate your most recent credit card statement. Look on your credit card statement to find the average daily balance and the annual percentage rate (APR). You will also need to find the percentage of the balance the credit card issuer uses to compute the monthly payment. This may be listed on the monthly statement. If not, call the issuer’s customer service number on the back of the credit card and ask.

Find your monthly finance rate by dividing your APR by 12. For example, if the APR on your card is 18.0 percent, your monthly finance rate is 1.5 percent.

Multiply the monthly finance rate by your average daily balance to find your monthly finance charge. For instance, if you have an average daily balance of $2,000 and a monthly finance rate of 1.5 percent, the monthly finance charge is $2,000 times 1.5 percent, or $30.

Calculate your monthly payment. Multiply the average daily balance by the percentage the credit card issuer sets for your account. If the percentage is 2.5 percent, then on a balance of $2,000, your monthly payment works out to $50.

Find the portion of your monthly payment applied to the principal balance you owe. Subtract the monthly finance charge from the monthly payment. For the examples from steps 3 and 4, this is $50 minus $30. In this example, after you make your $50 payment, the amount you owe will be reduced by $20, from $2,000 to $1,980.

Tips:

• Pay off your entire credit card balance rather than only making monthly payments.
• The most common method credit card companies use to calculate monthly credit card payments is the average daily balance. However, that is not always the case. Check the terms and conditions for your credit cards to see exactly how the balance is determined. Some methods will cost you more in interest than the average daily balance method.

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