2023-09-14 11:41:48
When it comes to credit cards, many people opt for this form of payment to avoid touching their savings immediately. Revolving credit is one of the options available for those who choose to pay only the minimum amount or delay paying the invoice. However, it is important to understand that this choice can lead to high revolving interest, resulting in debts that are difficult to pay off.
In this article, we will explore the concept of revolving interest, understand how it is calculated and provide important tips to avoid falling into this financial trap.
What is Revolving Interest?
Revolving interest is a fee charged when the full amount of your credit card bill is not paid. Many people believe that paying only the minimum amount or delaying payment for a few days is a way to organize their finances. However, when doing so, they end up facing problems because they do not consider revolving interest.
It is essential to know that revolving interest rates can be extremely high. In November 2019, the average interest rate was around 318.3%. This rate varies throughout the year and, therefore, it is important to always be aware to avoid accumulating a large debt.
Although banks may reduce monthly interest rates for late or minimum payments, this often results in an increase in interest rates for paying the bill in installments. Therefore, it is essential to always be aware.
The percentage that will be charged in revolving interest is described on the credit card statement. It is important to make the calculations carefully to avoid surprises in the future and make the best financial decision.
How to Calculate Revolving Interest?
Knowing how to calculate revolving interest is essential for anyone who is having difficulty paying their monthly bill and needs to decide how to act to pay off their debt and avoid creating new ones.
Calculating revolving interest is not difficult, since the percentage of this interest and the final amount with taxes are presented monthly on the invoice. To perform the calculation, follow these steps:
- Identify the revolving interest rate and the final amount with taxes on the invoice.
- Check the amount that will not be paid on that invoice and that will be released for the following month.
- Calculate the installments that will be included in the following month’s invoice.
- Add future installments to the amount that will not be paid, adding interest and taxes.
Let’s follow an example to understand better:
Let’s suppose that the bill for January is R$1500.00 and you were only able to pay R$1000.00 of that amount. This means that, in February, you will have an unpaid amount of R$500.00 that will be added to the invoice.
When adding up the outstanding installments and checking the proof of purchase, you realize that next month’s bill will be approximately R$300.00.
Until that moment, the February invoice will be R$800.00. However, it is still necessary to add the interest which, according to the January invoice, will be R$50.00.
This means that the total bill for February, if you do not make any further purchases with your credit card, will be R$850.00.
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Tips to Avoid Revolving Interest
Just by using your credit card correctly, you can avoid revolving interest and not get into more debt than necessary. Here are some tips to improve financial control and avoid problems:
1. Make a Shopping Plan
Avoid impulsive spending on your credit card. Using the credit function is not always the best option for a purchase. It is essential to be aware of your expenses. Whenever the value of the product is low and you have cash or debt, make payment immediately, avoiding fees, interest and a higher bill than necessary.
Also think regarding future purchases that cannot be avoided. If you know that you have a large expense to be made next month and that you will need your card limit free or that this will generate a very high bill, it may be better to avoid making a purchase on credit now.
2. Have Financial Control
Knowing when and where you are using your credit card is essential to avoid debt or situations that result in revolving interest. Controlling costs, knowing the amount accumulated for the next invoice and even how much you are able to pay are essential actions.
Financial control also helps to identify card fraud, duplication of charges and inappropriate charges. By knowing where the card is being used, it is possible to identify these irregularities on the invoice. Always check purchases before making payment.
3. Think Twice Before Installing
Paying in installments can be good to avoid a higher amount on next month’s bill, but it also means you’ll be paying for a purchase for longer. Although the R$80 installment is not a problem in 30 days, in three months it can make the difference between being able to pay the invoice or not.
Avoid paying in installments whenever possible, especially when interest is charged. Financial control can help you decide on this.
4. Beware of Due Dates
The expiration date of your card is generally decided by the user. Don’t forget to pay on time, as this will result in interest and can lead to very large debts, causing you to lose financial control.
Choose a date when you know you will have money to pay the bill. There’s no point putting your invoice due at the end of the month if you know your salary won’t last until then.
Organize your finances to have money available and pay your invoice on time.
5. Use Spending Control Technologies
Controlling how much you are spending on credit can be difficult, especially if you are not used to it. There are several applications and spreadsheets that can help with financial control.
Many software are interconnected with your card application, so that every time you use it, your purchase data is automatically entered into the program. They show when and where the purchase was made, how much of your limit has already been spent, the value of the next bill up to that moment and calculate the interest rates.
Using technologies available on the market is one of the most efficient ways to maintain financial control.
Conclusion
Knowing how you are spending your money is very important, but even more important is knowing how much you will have to spend in the future and whether you will be able to pay these debts.
Credit cards can be a consumer’s ally or enemy, depending on how well you understand the subject and the conscious decisions you make. Always pay attention to your expenses and avoid falling into revolving interest rates to avoid debts that are too high to be paid.
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