All right so we’re talking credit cards if you pay for something with a credit card and you do not pay your balance off after the first little you know grace period of them it usually it’s about a month you are charged a finance charge so this is your bad interest it’s basically you know your penalty for not paying off your loan on time so basic idea is that you have an APR all right an APR is an annual percentage rate and notice the keyword there is annual well when you are paying credit card bills you pay those bills monthly so to find your how much you’re gonna pay we have to take that APR and we that second winner should be there we go and we’re gonna divide it by 12 because anytime you have something annually and you want to make it monthly you simply divide it by 12 and that makes it a monthly percentage rate okay.

So that is how we find the rate of which we are paying interest and of course it will depend on how much money we have carried over on our card so but a big thing that I want you to recognize is that you will not be charged a finance charge if the entire balance is paid off before the due date so you know every month I use a credit card I put groceries I put gas if I go out to eat I all of this stuff on a credit card you know my bill comes in let’s just pretend that my bill is six hundred eighty-nine dollars and forty-one cents on the due date if I pay all of that then my balance is zero and I don’t owe any finance charges however if I only paid like two hundred then for 8941 would be my carryover balance and this is what I pay interest on you only are charged a finance charge and you only pay interest on the amount that you don’t pay before the due date so everything else is like forgiven it’s like an interest-free loan for that short period of time if you don’t pay it off that’s when they slap you with interest so let’s find some of that a finance charge on the balance of $1 000 with an APR of sixteen point nine percent okay so we start with our Apr change it to a decimal.

Because we know we can’t play with percents ask for cents we need them to be decimals and that’s an APR we need that to be monthly so we divide by 12 so this piece right here is our monthly interest rate well we multiply that by the amount of our balance right our carryover balance whatever you didn’t pay before the due date that’s what you’re paying so when we do that we will end up with 14 dollars and 16 cents so basically they’re saying they charge you an additional 40 000 16 cents for borrowing that thousand dollars for longer than a month all right so every month that goes by that you don’t pay off your entire balance you’ll be charged interest rates you’re just giving them money all right so now we’re gonna look at an APR 23 point nine percent with a carryover balance of 1650 so I take my percent and I divide by twelve right.

I make my Apr MPR go to monthly and then we multiply by our carryover balance which is 1650 that gives me a finance charge of thirty two dollars and 99 cents every month when I get my credit card bill McMahon I don’t want to pay that but then I calculate what would my what would the interest I would pay and every time I’m like I don’t want to give them in this case like thirty three dollars I can do a lot with thirty three dollars not just give it to somebody else all right let’s keep the same balance but let’s lower the APR so this ap R was twenty three point nine nine now we have fifteen point nine nine so let’s look at what a smaller per a PR but what that will do to your interest so when we multiply we will end up with a finance charge of $21.99 so what’s the difference in the so when we had a twenty three point nine nine percent interest rate our finance charge was thirty to ninety nine when we had an interest rate of fifteen point nine nine percent so eight percentage points difference it was twenty one ninety nine so the difference is roughly eleven dollars so the way you get a lower percentage rate is by having good credit if you have good credit and you can get a lower APR you’re gonna pay less interest eleven dollars.

Less on the same carryover balance so if you’re gonna carry a balance you want the lowest interest rate possible that way you pay a smaller finance charge all right last page let’s do a little work here so if the credit card balance is zero what should the finance charge be well if you don’t have a balance then you don’t have a finance charge so a zero balance is a zero finance charge okay number two the credit card has an APR of seventeen percent what if your balance was a hundred dollars okay so we take our APR as a decimal divided by 12 multiplied by our balance and we will get a finance charge of $1 42 and yeah that’s possible that there’ll be that small $1 42 and you might say well that’s nothing yeah but as they get going right that adds up quick okay now if we plot that on upon a graph without $400 balance.