What Is an APR? | Kiplinger

Swiping your credit card is easy. But if you have a balance with you, withdrawing it could be a challenge. Especially if you don’t know your credit card’s annual percentage rate (APR). And shockingly, a lot of people don’t. In a December 2021 Bankrate study, 41% of cardholders with a balance did not know their credit card’s APR. And with the Federal Reserve raising interest rates, knowing your APR is now more important than ever.

What is an APR?

Your credit card APR, or interest rate, tells you how much extra money you pay for each balance that you don’t repay in full at the end of each billing cycle. This rate is usually quoted as an annual rate and can be a fixed or variable rate. Currently, the average APR for new credit cards is 21.59%. If you don’t know your APR, you can find it in your credit card’s terms and conditions.

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Most credit cards operate on a variable interest rate, which means that the interest rate can change, often rising or falling in tandem with interest rates set by the Federal Reserve. When the Federal Reserve Board raises short-term interest rates, those increases affect interest rates on credit cards and most other credit and savings products, such as savings accounts, mortgages, home equity lines of credit, and other loans.

How does this affect me?

If you have a balance on a high-yield card, plan to cash it out as soon as possible without adding new purchases. When you get a tax refund—and most taxpayers do—you use that money to pay off a debt. Even if the refund does not fully pay the balance, the estimated amount of interest will be reduced by the reduced amount. Or you might want to start a side business and use the extra money to cash out your balance.

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Another option is to apply for a balance sheet transfer card. Recently, cards from Wells Fargo, Capital One, Bank of America and others allowed balance transfers with an introductory rate of 0% for five to 18 months. You can also check if current cards in your wallet offer fund transfer promotions.

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Chase, for example, recently offered current Freedom Unlimited cardholders a promotional rate of 0% on transfers through September 30th. The 0% rate applies until the October 2023 billing cycle, with a transfer fee of 4% of your balance. And you cannot transfer funds from one Chase-issued credit card to another; the transfer must be from another financial institution or retail card.

Remember that for any balance transfer, if you don’t pay your balance by the end of the promotion, the remaining balance will generally be subject to your card’s normal interest rate. And read the fine print – your balance may accrue interest in arrears.

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