Making sense of your credit card statement

If there's anything worse than a credit card bill, it's the paperwork that accompanies it. Credit card statements are not generally light reading -- or easy on the eyes, thanks to their jargon and notoriously small print.

"If you're visually challenged in any way, it's going to be a chore to get through," says Jeffrey Schwartz, executive director of Consolidated Credit Counseling Services of Canada, Inc., a Toronto-based non-profit credit counseling

Although reading your statement (with its "legalese" and "print that's so darn small") may be "like pulling teeth," according to Schwartz, it's important that consumers understand the basics. Here are some fast and friendly translations to the most important parts of your credit card statement.

Annual percentage rate (APR)
According to Consolidated Credit Counseling Services of Canada, the APR tells you how much your debt is costing you, based on an annual rate -- or the amount of interest a consumer would pay annually. The higher the APR, the more it'll cost you to use your credit card.

Yet the APR might not be the only thing that's costing you extra, according to Schwartz.

"People need to go through their credit card statements each month for errors," Schwartz says. "They need to understand what it's costing them to make certain decisions on how they handle their credit."

Minimum payment due
The minimum payment is the amount of the balance you must pay by the due date. Failure to pay this minimum amount could result in late fees, a raised APR and tarnished credit -- which can lead to difficulty obtaining other types of credit, like a car loan or mortgage, down the road.

What your credit card statement won't tell you, however, is that this amount is the bare minimum. You can -- and should -- pay more if you choose to.

"Something as silly as adding $5 to each and every minimum amount due can cut years and years off of the amount of time it would take to pay off your debt, in addition to how much you ultimately pay in interest," Schwartz says.

New balance
Each month, your credit card statement's new balance tells you what you still owe. The calculation is simple enough and based on your previous month's balance, payments and credits, new charges and finance charges. Schwartz says it pays to think long and hard about how much you owe -- and whether that amount includes fees for your bad decisions (such as exceeding your credit limit).

"If I am carrying a balance, I want to know how much carrying a balance is costing me," says Schwartz. "For example, if I choose to carry a balance from month to month, I think it's important to understand what that decision is costing me."

See related: 4 RRSP saving strategies; 59 per cent of Canadians pay off card balances

Published February 24, 2012

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