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It's important to start with the basics. Understanding credit card APR isn't rocket science! But most credit card consumers glaze over the annual percentage rates on their credit card applications and monthly billing statements. Don't make that same mistake. It will cost huge amounts of money in lost interest-you have better things to do with your cash!
There are Two APRs to Look for in any New Credit Card
If you're not quite sure how to calculate your APR, click here for a straight-forward guide that explains the process of annual percentage rates in down-to-earth terms. [link to page 2] But if you already know the basics, here are two APRs that you need to be on the lookout for whenever you apply for a new credit card. Depending on your lifestyle, spending habits, and cash flow needs, low APRs in different areas will be more or less important to you.
Introductory APRs
Ever see the headline "5% APR!" in a credit card advertisement? Chances are, it was an introductory APR. That means that you will benefit from this APR for a limited amount of time that is stipulated in your credit contract. Before you apply for a credit card with a low introductory APR, be sure to find out what your rate will be after your introductory period expires.
Tiered APRs
A tiered APR means that your monthly periodic rate will fluctuate depending on the "tier of balance" that your monthly debt falls into. For example, a tiered APR credit card may charge 12.5% APR for an average daily balance $0-$1,000; 15% APR for an average daily balance $1,001-$1,500; and 17% APR for any average daily balance above $1,500. If you're the type of person who keeps their monthly roll-over balance to a minimum, then a tiered APR may work for you; but if you tend to max out your cards (or if mitigating circumstances demand heavy credit card use with a long-term pay-down period ahead of you) then a tiered APR probably isn't your best option.
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