When you get your credit card bill every month, it can be easy to ignore those fine print notices that come with them. In fact, it may be tempting to ignore the information in your billing statement — you’ve got things to do, other bills to pay, and you just want to pay what’s required and move on with your life.
But if you take a few minutes to study your billing statement, you can figure out how to use your card strategically, and that can save you money in the long run.
Likewise, a few minutes of attention to those “Changes in Terms and Conditions” notices can help you avoid nasty surprises, like a much higher fee or a shortened grace period on the purchases you make.
Find your APRs
Your Annual Percentage Rate is the rate of interest you pay on your balances. Your APR is as a yearly rate: to understand how much you pay each month, divide that figure by 12. If you have an APR of 12 percent, you are charged 1 percent of interest each month. On a balance of $1,000, you would pay an estimated $10 in interest every month. (Just note: different card companies use different methods for calculating their exact interest rates and monthly balances.)
A credit card can have different APRs for different balances on your card. A card can have one rate for purchases, another rate for balance transfers, and a third, higher rate for cash advances. You can find these in a box labeled “Interest Charges” or “Interest Charge Calculation” on your billing statement.
Your APRs can also vary by time: you may have a card that has a low fixed APR as an introductory offer that lasts anywhere from six months to two years. After that period, the APR tends to increase dramatically. If you’re not careful, you might retain the same spending habits, while using credit at a much higher interest rate.
To act strategically, try to use your card only for the lowest APR category. You’ll pay less in interest over the long run, and that’s more money in your pocket.
Last, your APR can change according to your behavior: if you’re late on one payment, a credit card company can bump up your APR to a higher interest penalty APR, listed in the section of your bill called “Late Payment Warning.” You don’t want this to happen. Your low APR is something you earned by having a good credit history: do your best to hold onto it.
Heed your minimum payment warning
Thanks to recent federal credit card laws, your credit card company is required to tell you how much interest you will pay, if you chose to pay only the minimum payment on the remainder of your balance. It also tells you how much you can save, if you pay a higher monthly amount in a shorter amount of time.
Try ignoring the minimum and use the higher monthly amount to pay your bills. You already know your reward for doing so: the savings have been calculated for you.
Check for changes on your notices
Within the parameters set by the law, companies can change many of the original terms you agreed to, including fees, rate increases, and grace periods. If you understand ahead of time how those changes will affect you, you can better determine how you will respond.
Michael Camacho is the president and chief executive officer of Personal Finance Center. He has more than 18 years experience in retail banking and with financial institutions in Guam and Hawaii.