Don't understand APR

[thesnootyfox]

I'm trying to get a handle on our family finances after years of burying my head in the sand.

I'm ashamed to say that I don't understand the APR%. If example you had a credit card balance of £5,000 and the APR was 22% I would expect the monthly interest charge to be 22% of that but obviously it isn't as high as that. So what exactly does it relate to?

Thanks

APR is the annual charge, so to work out the monthly interest charge divide by 12.

Have you heard of the snowball calculator here. You put in the debt and the interest % and it tells you how long to pay off and how much interest you will pay. You can also play with figures to see the effect of increasing the amount you pay each month.

APR - stands for the Annual Percentage Rate - the % you will be paying across the year - not just the cost of borrowing, but also the other costs including fees, arragement charges etc...

With a APR the monthly charge a simple method/ball park figure would be using the APr and dividing by 12.

That is great thank you. I discovered the snowball calculator yesterday, quite depressing although I'm feeling positive now my head is out of the sand.

I phoned my credit card company yesterday and asked if I could increase my direct debit (was paying the minimum payment) as I have gone over my credit limit even though I haven't used the card for 2 years. They said it wasn't worth increasing the amount I pay back as it wouldn't make a difference. I also asked if I could have access to online banking as I find it easier to manage online. They refused saying that they couldn't allow me access as I'm over my limit.

Anyhow l found my login details to online banking in an old diary, I had access all along. I went online and increased my direct debit by an additional £35 per month. They were basically feeding me nonsense.

If you borrowed £100 at 22% APR and paid nothing back then after a year you would owe £122. To work out the monthly charge then you need to take the 12th root of 1.22 (or you'd get close enough if you just divide by 12 as thereinmadnesslies says.

But realistically, you just need to compare the APR of all your debt and start paying off the highest first!

X-post! Don't believe the banks, they actually like you being in debt!!

Snooty they sound v unreasonable.

Are you being charged for being over your credit limit?

Yes I am being charged £12 per month. I am about to claim for PPI and bank charges. No idea if I am
eligible but worth a try.

I started another thread about the PPI. I have been paying it since 1997 but only have statements for the last 6 years. Can I claim back as far as 1997? I don't know what they were actually charging me without the statements for that period.

I'm sorry I don't know about PPI. Have you looked on the money saving expert forums?

I don't know what your credit score is like, but have you considered transferring the balance on to a 0% card so that you can pay off quicker?

It's not quite like that because the interest is compound. If you owe £100 at the start of the year and pay nothing back you will owe £122 at the end of the year. But the actual monthly interest charge is 1.67% so, as your balance increases, the amount you pay in interest does as well.

Month 1 You owe £100
Month 2 £101.67.... £1.67 interest
Month 3 £103.37..... £1.70
Month 4 £105.10..... £1.77
until
Month 13 £122

Here's how to convert an annual rate to a compound rate.

If you only pay back the minimum on a credit card each month it can take decades to clear even a small balance. If you have your latest statement there will be instructions on how to make payments online. If you set up your CC as a payee with your online bank you can make extra payments whenever you can and clear your card a lot faster.

Thanks for advice everyone. I don't think I would get another credit card as my earnings are sporadic. I applied a year ago and was turned down.

The snowball calculator suggested that I pay extra towards another debt initially as the interest is higher. However the other debt is low (£300) and I would prefer to at least get my credit card back in the black before I look at paying extra on the other one. I'm going to put the amount that we would normally pay towards the council tax and water towards the credit card this month (free month) so that will help reduce it. I've increased the direct debit by £35 per month. We are living very frugally and may well have some money left at the end of the month so I might be able to pay some extra towards the debt at the end of each month.