Unlocking the Mystery of Credit Cards: How They Really Work

Introduction:

Credit cards have become a significant part of our lives. It is essential to understand the terms and conditions to stay in good standing and avoid any excessive debt. In this article, we will discuss your monthly credit card statement, interest rates, and terminology to help you manage your credit card effectively.

I. Understanding Your Credit Card Statement

Your monthly credit card statement is a list of your posted transactions for that billing cycle. For purchases on your statement that are not converted to an installment plan, you have an interest-free grace period that starts from the end of the billing cycle and lasts at least 21 days. The grace period is the time given to you to pay your balance without being charged interest on the purchases appearing on your statement. However, there is no interest-free period for balance transfers, cash advances, or convenience cheques.

II. Staying in Good Standing

Keeping your account in good standing is essential. Make sure to make the minimum payment by the due date every month to avoid late payments. Paying only the minimum amount results in interest being charged on your purchases at the purchase interest rate. To avoid interest on purchases, pay the entire statement balance by the payment due date every month. If you have a balance, your payments will go towards paying off your interest and fees first, and then towards your principal balance. If you're struggling to manage your credit card debt, consider creating a plan to get back on track. Set budgets, consolidate your debt, or switch to a card with low-interest rates.

III. Late Payments and Debt Management

Avoiding late payments is crucial to maintain a good credit score. You can set up scheduled payments or create alerts to remind you when your payment is due. This will help you manage your finances better and prevent late payments. Creating a plan for managing credit card debt can lift a significant weight off your shoulders. You can set a budget for your expenses, add an overlimit block, consolidate your debt, or switch to a credit card with lower interest rates.

IV. Credit Card Interest Rates and Calculation

Different types of transactions attract different interest rates, such as purchases and cash advances. CIBC uses the average daily balance method to calculate credit card interest. They add the balances for each day and divide that number by the number of days in your statement period. The result is your average daily balance. They then divide the Annual Percentage Rate (APR) by the number of days in the year to get your daily interest rate. They then multiply your average daily balance by the daily interest rate, and the result is multiplied by the number of days in your statement period. The total amount of interest you owe is added to your account at the end of the statement period.

For example, let's say you have an average daily balance of $500 with an annual interest rate for purchases of 20%. Your daily interest rate would be 20% divided by 365, giving you about 0.0548%. To calculate the interest you owe each day, you multiply 0.0548% by $500, which gives you $0.274. To get your total interest charges for the month, multiply your $0.274 by 30 days in your statement period, which equals .22.

V. Credit Card Terminology

Different terminologies are associated with credit cards, and it's essential to understand them to manage your credit card effectively. The Purchase APR and Cash advance APR are different rates for different types of transactions. Balance transfer refers to using a credit card to pay debt on another credit card. Cash advance refers to withdrawing cash using your credit card, and a convenience check refers to checks that are linked to your credit card. Total balance refers to the total amount of everything owing in your credit card account, including Installment Plan payments not yet due. Amount due is the outstanding balance on the statement, not including any installment plan payments that are not yet due. Minimum payment is the lowest amount you can pay by the statement's due date, including the installment plan payments due for that statement period.

Conclusion:

Credit card usage has become common, but it's essential to pay attention to the statement, calculate interest, and understand the terminology. Responsibility and a deeper understanding of credit cards will prevent late payments and debt accumulation. Utilize the knowledge obtained from this article to manage your credit card effectively.