Understanding your repayments

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A large number of financial institutions are offering low interest rate or zero interest rate on their credit cards in order to attract new customers. While these appear attractive, you should ensure you understand how the repayments on them are calculated so you don't find yourself even deeper in debt.

In the case of some of the offerings, the zero or low interest rate is applied only if you transferred the balance of your existing card to the new card. This is because the financial institution is trying to build up its customer base by making it attractive to switch.

Therefore in some cases, the incentive rate only applies to your balance transfer and you may be paying a higher interest rate (which varies between the different organisations) on any additional purchases you put on the new card. Make sure you understand what rate applies to which balance.

With repayments, you should also try and make more than your minimum payment as if this is all you make then you are unlikely to ever pay off your credit card debt. Remember that deals and offers do change, and different calculation methods can apply if you can't meet your monthly repayments. For example, at the end of an introductory or honeymoon period, if you still have an outstanding balance then you might find the new interest rate can be applied from the beginning of the introductory period.

To fully understand how much you will be paying on your card:

• Understand how your repayments are calculated. You don't want to find out that are paying more interest after you took the trouble to transfer to a low-rate card.
• Fully understand the fees you will be paying both during and after the introductory period.
• Find out what fees you will be paying if you are late making a repayment or if you exceed your spending limit.
• The smaller the repayment you make, the larger your debt will grow so always try to pay off some of the principal with each repayment.
• Always read the fine print and make sure you understand when different repayment methods may apply and at what time.