APR stands for Annual Percentage Rate, a term which defines the annual cost of a loan, usually credit cards, where the interest rate is expressed on a monthly basis. Most credit card users fail to account for APR when applying for a new credit card, or even when calculating the costs of any existing cards they hold. A 2.75% monthly revolving rate sounds so affordable, but if you were to annualize this rate, you may be shocked to find that you’re actually paying an annual interest of 33% on your card(s)! Here are some simple tips on how to avoid high APR fees.
- Maintain a good credit rating: This might sound like a sermon, instead of good, practical advice, but the truth is a good credit score will help you in negotiating low interest rates and fees with financial institutions. Lenders are willing to forego income on customers who are a good credit risk and help them maintain a healthy portfolio.
- Pay your monthly outstanding in full and on time: This is again a no-brainer – no revolving credit means no interest charges and late payment penalties and in the long run, zero APR. If you’re unable to make a full payment towards the outstanding balance, then try to make the maximum possible amount, rather than paying the minimum 5% due. This only leads to an interest spiral and any amount you pay thereafter, services only the interest component and the principal remains unpaid.
- Balance transfers: This tool is applicable across all kinds of financial products – credit cards, personal and auto loans, mortgages, etc. By transferring your debt from a high-APR account to a low-APR account, you will save quite a bit of money, especially if you clear off the debt within the interest-free (usually six months) or low-interest rate period. However, make sure to read through and understand the T&Cs thoroughly; very often there may be riders associated with processing or pre-closure charges which will nullify the benefits you may be gaining from moving to a low-APR account.
- If you are facing a temporary financial glitch due to loss of job or injury, etc, call up your credit card company and discuss the situation with them. Most companies are willing to charge a lower APR for a short-term period, rather than having you default on the debt and write-off the same as a bad loan. Be very upfront and honest about your financial situation, so that the company can work out the best solution which is beneficial to them as well as you.
Exercise financial prudence and employ any of the methods listed above to avoid high APR fees.