Posts tagged: credit_card_bill

How is Your Credit Card Balance Calculated to Figure Out the Finance Charge?

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You get your credit card bill every month, review it, and see that the interest has changed, yet again. You wonder how on earth they ever decide how the interest rates are figured into your expenses. Is it all a scandal or do they really havea formula for this type of thing?

Believe it or not, they do have some rhyme and reason for the differing amount of interest they charge you each month. It is based on the type of balance that is being figured. Here are a few of the types of balances that are important factors when it comes to calculating the finance charges that are charged by the credit card company you are with.

Average Daily Balance

First, your credit card company takes all the money you spent in one day and averages it out. After that, they average all the days of the month together so that they have the average daily balance for that certain month. Once they have that, it is multiplied by one twelfth of your APR. That is one method of coming up with the finance charges on your credit card balance.

Previous Balance

Some credit card companies will charge you more interest based on how much of a balance you carry over from month to month, rather than paying off your credit card debt completely. The beginning balance and the ending balance are both shown on your bill, and you will see how much you have left that you did not pay last month, or the last time you were billed. This amount of money from the previous month and the amount that billed to you this month combined will be what determines your finance charges for this specific month.

Daily Balance

The company will take the amount that you spent each day within the specified month and, rather than multiplying it by one twelfth of the APR, which fraction represents the months in the year, they multiply it by 1/365th of the APR. This, of course, represents each day in a full year. This method is based on how much you actually spend in a day, and therefore is more precise because it has more detail than an average daily balance, which only takes into account the possible average amount spent in a month.

Two Cycle Balance

This type of calculation of your finance charges is basically the same thing as your average daily balance, but instead of involving one month, it takes into account the last two months or billing periods. This can be difficult to handle if you carry a balance over each time. The interest rates build up and climb with each billing period.


What Will Happen if You Don’t Pay Your Credit Cards?

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Your credit card has helped you buy things you never would have been able to have proper to you receiving it. It has gotten you through some rough times and has allowed you to get things that are essential but expensive. So you faithfully make your payments each month, no questions asked.

So you bought something pretty expensive on your credit card with a good feeling that you could pay for it. To your dismay, the credit card bills come and you discover that you not only owe money immediately if not sooner, but that you do not have the means right now to pay it on time. So what do you do now? How are you ever going to pay for this credit card bill if you can’t help but just get deeper and deeper into debt?

There are several options, none of which are extremely pretty. But depending on your circumstances, you may be able to lessen the consequences, put them off, or even perhaps avoid them altogether if you decide on the right option for you and your credit card company.

Consult the Company

Your creditors, if you call them and explain your circumstances, may be willing to make a special arrangement for you that will allow you to get your bills paid. If you tell them why you cannot pay them on time, and explain to them that you still intend to pay the bill, they may be willing to give you a different payment plan that will allow you to pay it in smaller increments over a longer period of time. That way, your income may be sufficient enough to get you through, but it will take you longer to pay the money owed.

Ignore it Completely

The thing about creditors is that they cannot threaten to put you in jail just because you will not make your payment. You could ignore the creditors completely, but that would only buy you time and get you into more trouble. Eventually, the credit card company could take you to court, and if you have no good argument to go on, they will win a lawsuit against you and gain permission from the court to take the money you owe out of your assets. This option is not only a bad idea because it just prolongs the grief, but it ends up costing you more in the end.

File for Bankruptcy

One way out of debt is bankruptcy. This is when all of your assets are liquidated and given to your creditors to satisfy your debt. You could lose several things like extra cars, furniture, and perhaps even things you bought with the very credit card that got you into this mess. The important thing is to just manage your credit wisely in the first place. You just have to make sure you can pay your debt in full and on time, and spend nowhere beyond those boundaries.