The interest rate and your debt.
The interest rate is critical when it comes to debt, specifically when you are currently paying one off. At that point, the interest rate makes a difference in several months, and several thousand dollars of debt is paid off. The interest rate is a percentage that is charged on the money that is borrowed.
Many people are unaware of this type of information and so, today we bring you this breakdown so that if you come across it you can soak in this information and can discover and see what the interest rate has in common with your debt.
In installment loans, banks calculate the interest you would accrue over the repayment term, then add that total to your loan amount. In this case, the interest is built into your loan payment.
Since loans have a fixed payment amount that includes interest charges, you know in advance how long it will take to pay off that time, as long as you make your payments on time, of course.
With credit cards, the issuer charges interest in the form of a finance charge that is added to your balance monthly until you pay off the balance unless you pay the balance in full before the grace period expires.
The higher your interest rate, the higher your finance charges will be. When you are trying to pay off your debt, higher interest rates hurt you because a large portion of your payment goes toward the finance charge.
An example of this would be:
you will pay $5,980 in interest by the time you pay off the balance. In the second example, at a 20% interest rate, you would pay significantly more: $23,360.
The only way to save money on interest is to significantly increase your monthly payment, to $820 per month, or have your credit card issuer reduce your interest rate.
The upside of the payment increase is that you could pay off the balance in 32 months, even with the higher interest rate. Even if you have less hope of increasing your interest rate, it’s worth a try. And if your credit card issuer turns you down this time, try again in about six months.
Convincing your credit card issuers to lower your interest rate isn’t always easy, especially if you don’t have the credit history to qualify for a lower interest rate elsewhere.
On the other hand, if your interest rate increased because you missed 60 days on a credit card payment, the credit card issuer has to reduce your rate after six consecutive timely payments.
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