How Interest Rates Work

When people hear the words ‘interest rates,’ the only thing that hits their head is how to decrease interest rates. However, before you can decrease interest rates, you need to understand exactly how interest works. The trick to interest is reading the fine print and trying to determine whether that loan has a fixed interest or a fluctuating interest. Here’s how interest works:

Whatever money you owe, if you have an APR of – arbitrarily speaking – 19%, that means that on whatever you owe, at the end of the year, you will have to pay back 19% of the total bill. But, interest is collected monthly. So, it’s dangerous because you’re paying SO much interest on a monthly payment that could be high already. That’s how people get so caught up in debt.
If your interest was 0% when you signed up for the credit card, the second that you miss a payment in full, interest might completely jump to a phenomenal number. That’s the way credit cards make their money. They’re banking on your failure to come true to your debt. That’s why it’s so important NOT to get in debt.
You can argue and try to decrease interest rates, especially with credit card companies, because they do want your business. So, if you’re confident that you can continue to pay, call them up and say “9% doesn’t do it for me, drop me to 7%.” If they want to keep you, they’ll do it. They can afford to do it. They can’t afford to lose you.

Interest is a tricky game. Interest is tacked on and continues to be tacked on to whatever debt you have which is why it’s so hard to get OUT of debt. But, if you work hard on it and really focus on it, getting out of debt does not need to be an impossible task. It really can be as easy as cutting up your credit card and paying large chunks of money a month. I hope this clears up how interest rates work.