Terms You Need to Know to Get Out of Debt and Clean Up Your Credit

  • admin
  • May 7, 2018
  • Comments Off on Terms You Need to Know to Get Out of Debt and Clean Up Your Credit

Statistics have it that one in four adults is planning to clear a debt this year. Although this is a good plan, not everyone will get to meet the target. The reason for this is that some people do not strategize well thus they end up making mistakes and failing. One way of achieving the target is to learn the financial terms so that you can be in more control throughout the process.

1. APR

Only a few things are as important as the annual percent rate when it comes to debt. It is the amount of fee and interest that is charged to a debt every year. Although it seems straightforward, some people confuse its meaning. They assume that it is simple interest while in essence it is compounding. In other words, it is the interest that is included to debt in the ordinary schedule.

2. Variable rate

Interest rates on loans can be either variable or fixed. Fixed rates do not change, so borrowers can make financial plans easily. On the other hand, the interest on variable loans changes with time. For example, adjustable rate mortgages might lock in a rate for some years and then reset according to the current market rate. It implies that borrowers who take a loan on variable terms might pay more in future.

3. Annual fee

The annual fee is mostly found on credit cards. It is the amount that borrowers are charged every year to keep their line of credit open. Although companies might justify the fee by giving perks to the cardholders, they might not be worth the expense. In most cases, the annual fee will not give you extra options that cannot be found elsewhere. Therefore, you should consider getting fee free cards that provide similar perks. Borrowers also need to ensure that the benefits they have are similar to the fee-free credit cards