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When you transfer your credit card balance to one of the many low APR credit cards on the market, you might think that you're saving more money than you actually are. In order to get the real story, you must understand how APR works.
APR: The Story Behind the Offer
APR is the annual rate of interest you're charged on purchases to your credit card. As you probably know from reviewing your credit card statement, APR is not actually multiplied by your balance just once each year. In fact, you're charged a daily rate of interest on your purchases. That rate is developed by dividing your APR by 365. While this results in an extremely small daily rate, you must remember that each day, this rate increases your balance. Your daily rate is charged against your entire balance, which means your interest is compounding up to 365 times per year.
So don't let a low APR fool you--pay off your balances in full each month and avoid compounded interest charges.
|Jennifer Mathes, Ph.D.|