||Ask the Dollar Diva
How do I compute the monthly
Dear Dollar Diva,
I have a credit card charging 28.6 percent annual percentage rate
(APR.) However, when I computed the monthly rate this month, it
came to 24.22 percent -- for the month!
My balance last month was $1,203.38. The daily rate
is .07814 percent. My interest charge was $29.15, and my minimum
payment only $40. Is this legal? I feel as if I am being scammed.
You're smart to check the math when your bills come
in; mistakes can happen. In this case, there's no error; you just
got your decimal point mixed up when you made the computation.
Here's how the computation works: .07814 percent equals
.0007814 (the decimal gets moved two digits to the left). If you
multiply .0007814 times 31 days, the monthly rate is 2.422 percent,
not 24.22 percent.
The actual monthly rate is 2.422 percent; multiply
that by your balance of $1,203.38, bingo, there's your $29.15 finance
charge. That's a lot of money going out the door for nothing each
It gets even more painful when you analyze the minimum
monthly payment. All the company wants is $40, of which $29.15 is
for interest. That's a whopping 73 percent of your total payment
going toward interest, and a paltry 27 percent going toward reducing
the debt. Continue making those tiny minimum payments, and expect
to be married to this debt well into the next decade.
Smart people use a credit card for convenience. Plastic
is easier to use than checks, and the transactions can be downloaded
Money to keep track of what's going out each month. Smart people
only have one credit card, and they pay off the entire balance when
the credit card bill comes in. Instead of throwing their money away
on finance charges, they use those precious dollars to finance savings,
vacations, education, retirement and other things near and dear
to their hearts.
The Diva urges you to get smart. Stop using that high
interest credit card immediately, and make a commitment to pay off
the current balance as quickly as possible. Use theWhiz.com calculator
"What will it take
to pay off my credit card" to determine how long it will take
you to pay off the balance at various payment schedules. For example,
if you pay $218 a month, the debt will be history in six months.
And never again charge more on a credit card than
you can pay in full when the bill comes in. You have better things
to spend your hard-earned money on than finance charges.
If you're committed to dumping high-interest debt,
but don't know where to begin, read the Diva's "How
do I deal with credit card company dirty tricks?" for some practical
-- Posted: Oct. 24, 2000