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Credit cards are everywhere; in fact, you may have three, four, or even more in your wallet right now. Credit cards are very convenient and keep us from carrying cash in our pockets. When used appropriately and in a wise and responsible manner, credit cards can be very valuable items in your credit repertoire. But most folks carrying credit cards do not know what the terms and conditions governing the use of their cards really mean. Let us take a look at the most important of these terms and conditions and what they mean to you as a cardholder.
Annual Percentage Rate
The annual percentage rate or APR is one of the more important terms that you must know regarding your credit cards. Your APR is used to figure the interest that is charged on your credit card balance. The lower the APR, the lower the amount of your interest charges, and vice versa. Your APR can be a fixed rate, or it can be variable.
If your interest rate is fixed, your rate will stay the same for the entire life of the card (with some exceptions you will read about later). If your APR is variable, your rate can vary based on current market conditions, usually those found in daily financial publications like the Wall Street Journal. Optimally, your credit card should be at a fixed rate.
Payment Due Date
The payment due date on your card is the date on which your payment is due. Beware, this date is very important. If your payment is not received and processed by this date, your APR can be adjusted from the rate your card was originally issued at to the default rate. The default rate is usually a very outrageous APR, as high as 19.99% or more.
In addition, some credit card issuers may charge you late payment penalties in addition to increasing your APR. Be sure that you send in your payment in plenty enough time for it to be processed and posted to your account to avoid losing your original APR.
Minimum Monthly Payment
The minimum monthly payment is the least amount of money that you can send your credit card company each month in order to stay current on your balance. Keep in mind that with most credit cards and depending on your total balance due, the minimum monthly payment may only represent the interest charges due on the account. By paying only the minimum monthly payment each month, you may be paying on your credit card for decades.
Cash Advance
A cash advance on your credit card is one that is taken at a bank or automatic teller machine (ATM) for cash in lieu of charging items at a retailer. When you take out a cash advance on most credit cards, you will pay not only a fee to the card issuer and the ATM or bank, but also you will pay a higher interest rate on the amount of the cash advance than on your other, general purchases charged with your card.
Balance Transfers
A balance transfer is where you transfer the balance or part of a balance from one credit card to another. Many credit card issuers offer balance transfers without a fee, but then charge you additional, inflated interest on the amount that you transfer.
Another word of caution. Most of the terms and conditions that you receive with your credit card(s) can change at any time. Be sure to check with your statement each month to see if your terms and conditions have changed - or check online if you do not receive a paper statement.
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