Am I Missing The Point

winnie1_3

:huh:
CAN SOMEONE EXPLAIN TO ME ?
I HAVE A CREDIT CARD WITH £4000, APR IS 17.9%, I PAY £100 PER MONTH BUT £48 OF THAT GOES IN INTEREST EVERY MONTH SO TO ME IM THINKING IM PAYING 50% INTEREST EVERY MONTH PLEASE CAN SOMEONE EXPLAIN TO ME HOW THIS WORKS?

Lavendyr

You need to remember that you are paying interest on the whole balance, not just on the amount you pay each month. The total amount on it is £4000, so every month you are paying interest on all of that, not just on £100.

Over a year, 17.9% of £4000 is £716. Dividing that annual amount by the number of months in the year, if you didn't spend on it or reduce the balance, you would be paying somewhere around £60 a month in interest.

However in the course of the year you are reducing the £4000 by paying off £100 a month. So instead of paying £60 interest a month, you are paying just under this - and as you pay off more and more of the balance, the amount of interest should decrease proportionally.

Does that make sense?

maddysaver

You don't pay interest on the payment you make, but on the total owing. So they take the 17.9% APR (whatever that works out at per month) first out of the £100 you pay, then the rest gets taken off the capital.

ZTD

APR = Annual percentage rate.

It's the rate which your debt would increase if you left it to just build up for a year.

17.9% equates to about 1.4% per month which on a £4,000 debt equates to about £55.

So every month, £55 interest is added, then your payment taken away. This means you're paying about £45 off your debt. Even paying an extra tenner will really shorten your term, and save you a hell of a lot in interest.

Go here and start playing with some of the calculators - you will be surprised.

Once you've done that - come back here, and read the first couple of threads in the list of threads, and start preparing your SOA.