I hate credit cards with a passion.
My personal history with credit cards has not been good at all. After years of paying them off, my bones grew tired of working 16 hour days for credit card companies. If you don’t think you work for credit card companies, then think about this. If you borrow $500 now and pay the minimum, you will be paying for it for the next 30 years. That is working for someone else.
Some of us have become clever and pay off our credit cards every month. The problem is that in this economy, we just can’t avoid using credit cards. Banks and credit card companies have managed to make sure that the use of cash as a mode of exchange is nearly obsolete. So we decide to use the cards but pay them off before we incur interest on the balance. It worked very well for some time. Now even that is about to end.
The interest paid on credit cards used to be calculated on an Average Daily Balance method. If you paid off your credit card within a month, you never paid any interest in it. Now the sneaky credit card companies have a new method to milk your bank. It’s called the “two cycle average daily balance” method. The interest paid on your credit card is calculated on two cycles. In my case the past two months.
If you used your credit card for a $2000 purchase and paid off $1800, the Average Daily Balance method will charge you interest on the remaining $200, which is reasonable. Now with the Two-Cycle average daily balance method, they will calculate your interest rates on the two previous months. Your paid off $1800 will still come into play. Now how’s that for being sneaky.
Next time you get your credit card, make sure you know what method they are using to calculate your interest. It will save you a few shocks.