Debt Consolidation Glossary
At New York Debt Consolidation we believe education is an important part of the debt recovery process. This debt glossary helps define important terms relating to consumer debt.
A flat, yearly charge similar to a membership fee. Not all credit card companies charge annual fees.
Annual Percentage Rate (APR)
A measure of the cost of credit expressed as a yearly rate. Many credit card plans charge different APRs for credit used in different ways--for example, one APR for purchases, another for cash advances, and still another for balance transfers. Some plans may increase the APR if a payment is late.
A fee charged if you obtain a cash advance. This fee is in addition to the interest rate charged on the amount of the advance. Typically cash advance fee's are higher than normal credit card charge fees. Credit Cards should not be used as a means to get cash because the high fees make it very difficult to pay off the balances.
The dollar amount you pay to use credit. Besides interest costs, the finance charge may include other charges such as cash-advance fees. For most consumers with serious debt issues simply paying the finance charges on all of their debt can be difficult. If you don't pay off more than just your finance charge each month you will never get out of debt.
A period of time, often about 25 days, during which you can pay your credit card bill without incurring a finance charge. Under nearly all credit card plans, the grace period applies only if you pay your balance in full each month. It does not apply if you carry a balance forward. Also, the grace period usually does not apply to cash advances, which may begin accruing interest from the day of the transaction. As we stated above, credit card cash advances should be avoided.
A measure of the cost of credit, expressed as a percent. For variable-rate credit card plans, the interest rate is explicitly tied to another interest rate, such as the prime rate or the Treasury bill rate. If the other rate changes, the rate on your card will, too. The interest rate on fixed-rate credit card plans can also change over time. The card issuer must notify you before the "fixed" interest rate is changed. Many card issuers will raise interest rates if you miss payments (in addition to charging you a late-payment fee).
Late Payment Fee
A charge imposed when your payment is late. If your payment arrives after the grace period, you may be charged both a finance charge (the interest on your outstanding balance) and a late-payment charge. Some card issuers may also impose a penalty rate if you have more than one late payment within several months.
A fee imposed when your charges exceed the credit limit set on your card.
Many credit card companies will raise your interest rate if
The rate you are charged each billing period. For most credit card plans, the periodic rate is a monthly rate, calculated by dividing the APR by 12. For example, a credit card with an 18% APR has a monthly periodic rate of 1.5%.