Understanding APR

What do you know about your credit card?

“I get extra points when I fly!”

“I have an extra $3,000 when I need it.”

“They usually send me gift cards.”

While it’s sad to think about, most people are unaware of where their money is going and how their credit card is affecting them, so let’s break it down.

Credit card companies are in the business of making money. How do they do this? By charging interest. When you apply for a card, you’ll see an interest rate referred to as the APR or Annual Percentage Rate. It is vital for you as a consumer to understand the APR and how it impacts your purchases.

APR is the total cost of borrowing money, expressed as a percentage of the total owed, applied per year. For instance, let's say you charged $1,000 for merchandise, and your APR is 24%. In a year, you'd owe $1,240. That's the $1,000 you owe plus $240 in interest and fees (24% of $1,000).

Most commonly, APR is "compounded" or applied monthly. This can make the math a bit trickier. That means you're charged 2% each month. If you owe $1,000 at the end of your monthly statement period, you'd be charged $20 in interest. Your total due would be $1,020. If you made no payment, you'd be charged interest on the new balance, which is now $1,020. Interest and fees for the second month would be $20.40. That extra $0.40 might not seem like much, but it adds up over time.

In theory, avoiding interest is easy. All you have to do is pay your balance in full every month before the end of the grace period. It’s that simple, right? Wrong, we all know too well that debt can get away from us, so in good practice, compare the APR to secure one with the best deal and lowest APR possible when you’re shopping around. You can also call and speak with your current credit card company to see what options there might be to lower your APR. At Fort Worth City Credit Union, you may be eligible to lower your interest rate when you transfer your existing balances to our Fort Worth Proud Visa® Credit Card.