Credit Card Cash Advance Rates

New law passed in May 2009 which went into effect in the beginning of this year will require credit card companies to make bills easier to understand.

For instance, they will need to provide a table showing how much interest charges will cost if only minimum payments are made. Cardholders will also be shown how much they need to pay each month to erase a balance within three years.

Available credit – Credit card companies don’t have to stop you from exceeding your credit limit. But they will charge you a fee for doing so - about $29.00 on average.

A transaction can still be denied before your so –called available credit is used up. This might happen if your spending habits are deemed risky or out of character.

For instance say you start carrying a balance after years of paying off bills in full that could trigger a clampdown. Another red flag might be if you get too close to drying up your credit.

Another common mistake is confusing your available credit with your cash advance credit line. To understand credit card account terms you should know the two different types of credit will be listed separately, with the advance credit line coming with a significantly higher interest rate.

Average daily balance – It is easy to dismiss this amount because the purpose is not clear but this is the amount used to calculate finance charges

To determine your interest charge, the card company starts with the average daily balance – which is your balance at the end of the day during a billing period, divided by the number of days in that billing period.

That number is then multiplied by a monthly period rate, which is the annual interest rate divided by 12. Some banks use a daily periodic rate, meaning they divide the annual rate by 365.

So what does that mean for you? Now that you understand credit card account terms you realize paying off bills early – even before the due date will lower your average daily balance and subsequently your financing charges.

Due date – Even if you mail your payment so it arrives by the due date, don’t be surprised if you’re hit with a late fee.

One reason is that deadlines can be for a specific time, sometimes as early as 1pm so if your payment is not processed until later in the afternoon – you get hit with a late fee. The time your payment is due is usually buried somewhere in the terms on the back of your bill.

According to Consumer Action, most card issuers 78% immediately charge late fees if payments aren’t received by the due date. The majority 90% also said a late fee is levied even if the due date falls on a Saturday or holiday.

Online and phone payments aren’t always instantaneous either, so give some time for the payment to be processed and cleared.

The new law will push due date deadlines back to 5pm and require that they don’t fall on a holiday or weekend.

Residual interest – Let’s say you pay off a $1000 balance you’ve been carrying. You are not debt free because the following month you will get a bill for interest charges on the 1,000 dollars – this is called residual interest.

Interest continues accruing on debt in that window of time between when your statement was issued and when you make your payment. By the time you get your statement and submit the payment, you’ve racked up more interest.

If you understand credit card account terms you will now know to one way to avoid residual interest is by paying off your balance in full each month, since this gives you a grace period in which you don’t rack up any charges. Carrying a balance for just one month, however, can result in charges.

Another good way to avoid residual interest is to check your statement online and pay off a balance as soon as the statement is issued.

Learn more about what you need to watch out for on your credit statement. See our sister site =>

Bad Credit Blues

and find out about what credit card companies hope you won’t notice on your statement. See the post

Credit Card Balance Smackdown higher fees lower limits

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