What is APR? | Kiplinger
Swiping your credit card is easy. But if you have credit, paying it off can be a challenge. Especially if you don’t know your credit card’s annual percentage rate (APR). Surprisingly enough, not many people do that. In Bankrate’s December 2021 study, 41% of cardholders with a balance don’t know their credit card’s APR. And with the Federal Reserve raising interest rates, knowing your APR is more important now than ever.
What is the annual interest rate?
Your credit card’s annual interest rate, or interest rate, is the amount of extra money you’ll pay on any balance that you don’t pay off in full at the end of each billing cycle. This rate is usually stated as an annual rate, and it may be a flat rate or a variable rate. Currently, the average annual percentage rate for new credit cards is 21.59%. If you don’t know your annual interest rate (APR), you can find it in your credit card’s terms and conditions.
Most credit cards operate at a variable rate, which means the rate can change, often going up or down along with the interest rates set by the Federal Reserve. When the Federal Reserve raises short-term interest rates, these increases affect credit card interest rates as well as most other lending and savings products such as savings accounts, mortgages, equity lines of credit, and other loans.
How can this affect me?
If you carry a balance on a card with a high interest rate, plan to pay it off as quickly as possible, without adding any new purchases. If you receive a tax refund—which most taxpayers do—use that money to pay off the debt. Even if the refund does not pay the balance in full, the reduced total will reduce the amount of the assessed interest. Or you may want to have a side business using the extra money to pay off your balance.
Another option is to apply for a balance transfer card. Recently, cards from Wells Fargo, Capital One, Bank of America, and others allowed balance transfers at an introductory rate of 0% for five to 18 months. You can also check to see if any existing cards in your wallet offer balance transfer promotions.
For example, Chase recently offered existing Freedom Unlimited cardholders a 0% promotional rate for transfers made by September 30th. The 0% rate continues through the October 2023 billing cycle, with a transfer fee of 4% of your balance. You cannot transfer credit from one credit card issued by Chase to another; The transfer must be from another financial institution or retail card.
Keep in mind that with any balance transfer, if you haven’t paid your balance by the time the promotion ends, any remaining balance is generally subject to your card’s normal interest rate. And read the fine details – your balance may be subject to a retroactive interest charge.