What is a credit card interest rate?

The interest rate on a credit card is the price you pay to borrow money. In other words, the additional payment that the banks or financial institutions earn for having done you a favor. Now, if the interest rate is high, you can lower that APR.

What does APR mean?

Credit card interest rates are usually expressed as an annual rate. This is called the annual effective rate (APR). On most cards, you can avoid paying interest on your purchases if you pay the balance in full every month until the payment date. In order to reduce those high credit card payments, the first thing to do is learn what the APR of your credit card is. The APR represents the annual interest rate, or the percentage per year that you will be charged for the balance you have. If you determine your APR by month, simply take that number and divide it by 12 (months). This will tell you the monthly interest percentage. Most credit cards charge interest on the average daily balance. This means that if nothing happens for 29 days of a 30-day month, but then you spend $1,000 on the 30th, you will be charged interest on that $1,000 for the 30 days. The calculation would be as follows: ($1000/30) x (APR/12). As an example, let's say you only made a $1,000 purchase and your APR is 15 percent. Next, calculate ($1,000 / 30) x (15 percent / 12). Don't forget that percentages in calculations are a part of 100. Therefore, 15 percent would be 15/100 or 0.15. For simplicity, the extended equation would be ($1,000 / 30) x (.15/12). Your answer should be $33.33 x 0.0125, or ultimately about 42 cents. Sounds like nothing, right? Well, it gets more complicated when you carry that balance all month long.

What should be done with those high payments

Do not forget that some interest rates may vary. Check the fine print to see exactly what you'll be paying. Consult a trusted company that will help you reduce those payments, or the interest rate through financial strategies such as debt consolidation at a much lower percentage than the current one.

Before applying for a credit card

Each bank is legally required to clearly disclose each card's annual percentage rate, or APR. This is the rate you will see in the black and white box when you click on the “terms and conditions” link. While you might think these revelations make choosing the lowest APR an easy task, it's not that simple.