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Determine the Finance Charge for Credit Card Debt Before Applying

written by: Kimberly Johnson•edited by: Jason C. Chavis•updated: 6/29/2011

Credit cards are a necessary financial tool for many people. However, choosing a card with a high interest rate can quickly become a problem. Before you apply for a card, learn how to decipher the finance charge for credit card offers to determine how much you will really end up paying.

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    Credit Card Interest Charges Credit cards can be a useful tool in managing personal finances if they are used correctly. They allow you to pay off purchases over time as opposed to up front and many cards offer reward programs such as airline miles and cash back. However not all credit cards are alike and some just aren’t worth the benefits. One of the most important items to research is the finance charge for credit card offers, which is also called the interest rate.

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    What is a Finance Charge?

    Every credit card has a finance charge that is added to balances. But what exactly is a finance charge and how does it affect your repayment amount? Quite simply, it is a fee that the credit card company charges you in return for providing you with credit. It is based on a percentage of your total balance and is typically represented by a term called the Annual Percentage Rate (APR).

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    Variable and Fixed Finance Charges

    There are two types of credit cards, those with a fixed interest rate and those with a variable interest rate. The fixed interest rate cards have a set rate that does not fluctuate, unless you make late payments or have a delinquent account.

    Variable interest rates on the other hand go up and down throughout the year. These rates are based on a formula represented as prime + %. This means that the credit card company takes the prime U.S. interest rate which correlates to the Federal Reserve rate and adds a certain percentage to it. Therefore, as the Fed’s rate goes up and down, so does the interest rate on the credit card.

    It should also be noted that there are promotional credit card interest charges which are very low, sometimes even zero, interest rates that last for anywhere from six months to a year. These rates are designed to lure customers in and then the rates rise after the predetermined time period expires.

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    Compare Credit Card Interest Charges Before Applying

    The interest rate information is located in the fine print area on every credit card application, as well as on the credit card company’s website. In this fine print, it will state whether the rate is fixed or variable. In addition, it will state whether the card has a single interest rate or whether there are separate interest rates for regular purchases, cash advances and balance transfers from other credit cards. It is fairly standard practice for cash advance and balance transfer rates to be different from the interest rate for regular purchases.

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    Finding the Best Finance Charge

    If you already have a credit card in mind, reading the application to find the interest rate should be fairly straightforward. However if you are still trying to narrow down your credit card choices the task can be daunting. Luckily, there are some websites that assist with the process, such as and These sites list credit card interest charges for multiple cards, as well as variety of other features.

    Although the finance charge for credit card offers may seem confusing, taking a few minutes to thoroughly read the credit card application will help you decipher which cards will help you with your financial goals and which ones are too good to be true.

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    Image Credits Credit Payment 3, Lotus Head