The credit card APR: why this number is misleading

I have two principles in credit card management, one “hard” and one “soft.”  The hard principle, never to be violated under any circumstances, is:

“Never miss a payment”

Failing to follow the hard principle would damage my credit profile to an unimaginable extent and therefore is not allowed to happen.

The soft principle goes:

“Avoid carrying a balance except under special circumstances”

The soft principle, serves the purpose of avoiding wasting money on interest payments. From time to time there will be a credit card promotion with an introductory 0% period offer, and in such a situation carrying a balance until the end of the promotional period doesn’t do any harm unless your balance is so high that it implies bankruptcy risk.

Anyhoo, you should never have to pay credit card interest, for the simple reason that it is too expensive. The lowest credit card annual interest rate, or APR (Annual Percentage Rate), that I have seen, is 9.99%. The highest I’ve seen? Around 30%. And worse yet, these rates do not reflect the actual interest you get charged. This blog post explains why, by showing you the math used to compute the APR.

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