Credit cards are useful for managing finances and accruing rewards. If you have credit card debt, you may be wondering if a balance transfer can help with interest. In addition to the interest you’re paying, if you’re behind on payments you could be paying a penalty APR.
When opening a credit card, you start with a baseline APR that applies to any unpaid balance you carry from one billing cycle to the next. Credit cards have an APR range. The better your score, the lower your APR in that range. If you make the minimum payment, you will stick with the baseline APR. If you are paying your balance in full, you’re just using the credit card for its rewards. You do not have to worry about penalty APR. At any point if you are more than 60 days late on your payment, your lender will move you up to the penalty APR. Any time you are moved to the penalty APR, your lender will notify you.
Why Does Penalty APR Matter?
Most who miss making their minimum payment on their credit card do it from necessity, not choice. If you have room within your budget, it’s a good idea to keep up with the minimum payment at least. This allows you to avoid paying the penalty APR. You want to avoid paying the penalty as this can be twice as high as the normal APR. The penalty does not go away soon as you make your first minimum payment. Instead the lender can continue to impose the penalty for up to six months. Once you make six on time payments in a row, then the lender must review your rate. Until that time, the lender can continue to impose the penalty.
The penalty does not just apply to the balance you had during your delinquency. It also applies to the future balance going forward. Until you are moved to the regular APR any balance you generate will be under the penalty.