Of all the positives that come with having a credit card, like:

…there are some negatives.

Paying annual fees, foreign exchange fees, and APR charges are all features we could live without even though we tolerate them. It is a packaged deal, after all.

And though we accept the downsides in order the get the benefits, there are some things you shouldn’t just accept as second nature, like interest charges.

Because it’s not just a one-time thing – it can snowball relatively manageable credit card debt into something much more serious and harder to get rid of. The best part about interest charges is they’re avoidable when you know how they work.

So let’s go over some of the basics when it comes to credit card interest rates so you can avoid its trap at all costs.

Credit card interest rates

In the United States, credit card APR rates are usually set as a range. The range is based on the prime rate, the issuer’s set ranges, and your creditworthiness.

So this means that most credit cards have a minimum APR rate (if you have impeccable credit) or a maximum APR rate (if your credit is very poor). And when the Prime rate rises, that means the minimum and the maximum APR rates go up as well.

Most APR rates can range anywhere from prime + 3.65 to prime + 23.74.

How interest rates are calculated

Although your APR is expressed annually, it’s usually calculated at the end of each month.

In order to figure out how much you’re paying in interest, you’d have to convert your APR (annual percentage rate) into a monthly percentage rate.

As an example, if you have a credit card with 22% APR, you can divide that number by 12 to get the rough monthly percentage rate.

22% / 12 months = 1.83%

And if you carry a $2,000 balance from month to month, for example, you’ll incur $36.66 in fees.

$2,000 * 0.0183 = $36.66

If you’re only making minimum payments, it’s easy to see how debt can get out of hand fast.

It’s also important to note that credit card interest is compounded, meaning your interest charges are added onto your account balance, and if unpaid, end up being calculated in the next month’s interest charges from that total.

Using our example from above, your new balance after 1 month would be $2,036.67.

Interest charges on that balance is now $37.27

$2036.67 * 0.0183 = $37.27

So, after 2 months, your new balance would now become $2073.94.

What this means is, for an unpaid $2,000 balance, you would incur $73.94 in charges in only 2 months without even making another purchase.

Related: Best Credit Card Offers, Sign-up Bonuses, and Deals

Credit card interest calculator

Now that you have the basics covered, let us introduce you to our credit card interest calculator.

You can easily punch in some numbers to find out:

  • exactly how much interest you’re paying,
  • how long it will take you to pay off your credit card balance, and
  • how much you could be saving with a low interest credit card.

All you have to do is write down how much you currently owe on your credit card, your current APR rate, and your typical monthly payment.

The interest calculator will tell you (in number of months) how long it would take to pay off your balance entirely.

And if you move the “New interest rate” slider lower, the interest calculator will let you know just how much money you could save in interest payments with a lower APR credit card.

Low APR credit cards

So what options are out there for low APR credit cards?

Well, if you have an excellent credit score, some regular credit cards offer APR rates as low as Prime + 3.65.

The , for example, will offer just that. It also provides special benefits for military members and some purchase and travel insurance. (Just note this card is only available to USAA members).

If you have poor credit, however, the interest rate can shoot all the way up to Prime + 20.65.

Making sure your credit score is up to par is a great way to avoid paying more than you have to, and ultimately, save more money in the long run.

Or, another great low APR option is the , offering a single APR rate instead of a range – prime + 8.74%. This way, there’s not guessing what your APR rate will be.

Related: Should I Consolidate My Credit Card Debt?

Balance transfer credit cards

If your credit is less than favourable, perhaps taking advantage of a great balance transfer promo is enough to get you on dry land.

The and the are 2 of the best options for balance transfers, offering new cardholders 15 months and 18 months of 0% APR, respectively.

It’s important to note, however, that the best way to take advantage of a balance transfer promo is by focussing on paying off your balance rather than making purchases with these cards.

That way, you’re getting to the root of your debt rather than adding to it.

Debt is a slippery slope

APR charges can be a tough pill to swallow. You’re essentially giving money away to the banks with nothing to show for it.

That’s why it’s important to stay on top of both your credit card payments and your credit score so you can use your hard-earned money for things you actually need and want.

Have you ever had to overcome a large amount of credit card debt? How did you get out of it?

Let us know in the comments below.