Understanding APR, or Annual Percentage Rate is vital in getting your finances in order. Simply, APR is the amount of interest you get charged for money borrowed on your credit card. As each card is different, you should take a look at your cards on an individual basis. There are also probably better cards out there on the market you could switch to. The following example uses an APR of 18%.

Annual Percentage Rate (APR) Explained

We have to divide the APR by the rate at which interest is applied. We call this the Periodic Rate (PR). Credit cards usually use a monthly or daily rate. To keep things simple we will use monthly, but to use a daily rate, substitute the 12 months for 365 days.

PR = APR / 12

1.5% = 18% APR ÷ 12

Using this in a real example; let's assume our client has carried a balance on a credit card for $1,000. With an APR of 18%, we simply multiply the PR by the balance:

Applied Interest = PR * $1,000

$15 = 1.5% * $1,000

Compounding Interest

Looking at the above, one months interest isn't so bad. But, the reason why people stay in debt is because the next month, interest is applied on the previous months interest as well if the balance is not paid off in full? This is compounding the interest.

If you are struggling in making your monthly payments, consider consolidating your debt with a government approved Debt Management Program. This is an ideal way to either reduce or freeze those high interest rates getting you debt free fast. Call today, or fill out the information request. You will be suprised at how fast you can become debt free.