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When Does Interest Start on Credit Cards?

Credit card companies start charging you interest the day you fail to pay the full balance at the end of the month. Once that happens, credit card debt can quickly grow. Understanding credit card interest rates and how they work is essential to managing your debt.

Here’s a quick guide to help you get started.

A person holding a credit card and a bank statement

How Credit Card Interest Rates Are Calculated

Credit card companies issue cards with an annual percentage rate (APR). When you don’t pay your full balance at the end of a billing cycle, the credit card company will use the APR to calculate purchase interest, the extra amount you’ll be charged for carrying a balance.

When you carry a balance from month to month without paying it off, the credit card company will begin charging you daily interest based on the daily periodic rate (DPR). The DPR is your APR divided by the number of days in a calendar year: 365. So, a card with a 20 per cent APR will have a daily interest rate of 0.0548 per cent, which doesn’t sound like much — until compound interest takes over.

Compound Interest and Your Balance

Compound interest happens when the interest you were charged today gets added to tomorrow’s balance, on which more interest will be charged. This snowball cycle continues daily, and your credit card debt can explode in a matter of weeks. You’ll see the daily interest on your monthly bill as a finance charge. If you don’t pay the full balance, it’ll roll over into the next month as your compound interest charges continue.

How To Pay Down a Credit Card

As you can see, a seemingly small unpaid credit card balance can quickly turn into a debt crisis. Here are some ways to prevent your credit card debt from getting out of control.

  • Pay your bill in full as soon as you get it

  • Put payments on your credit card several times a month

  • Transfer your balance to a zero percent card

  • Seek professional help from a licensed insolvency trustee

What Is A “Good” Credit Card Interest Rate?

The best possible APR you can get is zero per cent, which some credit card companies offer as an introductory rate for a limited period. However, typical credit card interest rates hover around 19.99 to 20.99 per cent. You can find cards with rates as low as 8.99 per cent, although cards with lower interest rates also have annual fees.

Credit Counselling in Ottawa and Across Ontario

At D. & A. MacLeod Company Ltd., we can help you tackle your credit card debt with credit counselling services through an in-person or virtual appointment. We have locations in Ottawa, Kingston, Kanata, Brockville, Smiths Falls, Pembroke, and Cornwall. We can help you prepare a monthly budget and suggest ways to cut spending.

Contact us today to speak with a licensed insolvency trustee and let us help you find a new beginning™.


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