If you have ever sat down with your monthly credit card
statement or statements
and tried to calculate how your monthly
minimum payment required came to be,
it can be difficult enough
to give you headache. Many banks that issue credit cards
lure consumers in with low introductory rates that suddenly zoom
to astronomical
highs after that initial trial period is
over. Furthermore, there are various fees to take
into
consideration such as annual membership fees, finances charges,
late
fees, etc. Not to mention the interest rates that have a
tendency to fluctuate.
If you have one or more credit cards, all
with different fees and varying interest rates
it can be almost
impossible to figure out a monthly budget for yourself based
on what your monthly minimum credit card payments will be.
As distressing and confusing as this can be there is actually a
mathematical
formula used by financial institutions who issue
credit cards in order to determine
what your monthly minimum payment will be.
Depending on which method your bank uses, you will either pay a
payment based
on your average daily balance, your balance
based on adjusted payments, charges
and interest rates or your
previous balance. Each one of these methods has a
tendency to
favor either the card holder, the card issuer or a fair balance
between the
two. When you are considering applying for a new
card or consolidating your
balances, or simply trying to figure
out how much money you’re really supposed to
pay every month, it
is a good idea to read the small print on your card member
statement to determine which method that bank utilizes.
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The method that is most beneficial to the consumer or cardholder
is the adjusted
balance system. With this formula the bank
will add any new charges to your
previous monthly balance,
subtract payments and then take that sum and multiply
it by the
monthly interest charge. The resulting total is the minimum
amount you
will be required to pay that month.
Conversely, the system that appears to favor the issuer of the
card is known as the
previous balance system. With this method
the financial institution will multiply the
balance from the
previous month by the monthly interest payment, regardless of
any payments you have made since the prior month. This means
that even if you
have made a large payment that month, you will
still be penalized for the previous
month’s balance.
Finally, the system that seems to run down the middle is known
as the average
daily balance method. Your average daily
balance (monthly balance divided by
average days in the month)
is added to any accrued charges as they occur. Any
payments
that are made are subtracted. The average of each daily total is
calculated
and that sum is multiplied by the monthly interest rate.
Sound confusing? Factor in late fees, over-the-limit fees and
annual membership
rates and it becomes even more difficult to
calculate a budget when you’re making
monthly credit card payments.
As confusing as it is, it is extremely important that you go
over every charge on your
credit card and calculate the minimum
monthly payment due before sending in the
payment. Do not take
the word of the issuing bank that this is the amount of money
that you owe. While the amounts on the statement are generally
correct, there could
have been a mistake. In case there is an
error on your statement, either in charges
made or in the amount
of your minimum payment, you will normally have only a
limited amount of time in which to appeal. After that time limit
is exhausted you will
generally have no recourse and will
be stuck paying the money, regardless of whether
you really owe
it or not. Most banks allow you 60 days in order to dispute
a charge or error and are required to provide you with a reply
within 30 days. If the
result of the investigation shows that
there was indeed an error, you will either not owe
the money or
receive a credit on your statement. If, however the
investigation reveals
there was no mistake, you will be
responsible for paying the bill. Should you find that
you still
do
not understand, do not hesitate to call customer service and ask
them
politely to explain it to you. While you will still
be required to pay the amounts due,
if you understand how the
billing system of that company works, it can go a long way
toward assisting you in keeping future charges down.
For help with paying down your
credit cards and all other unsecured debt,
simply contact us. We will
provide you with a free debt
analysis and quote without
any further obligation. Just
Click Here to fill out a simple
form and free help is on it's way.
About the Author:
Ryann Cairns have been writing
debt and debt related content for websites for the
last few years. He is
currently working on various
topics from loans to gambling for
his employer, Strange Logic ,
a search engine
optimization company.
One of the sites he is responsible for operates in the UK debt
field called
UK Debt
Advice
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