Personal Finance Terms to Know:
• Credit Card Balance – This is the total amount you owe on your credit card. If you have different credit cards, you'll have separate balances for each one.
Example: Imagine you owe $500 on one credit card and $300 on another. Your total credit card balance would be $800.
• Balance Transfer – A balance transfer is like moving money from one savings account to another, but with credit card debt. It means you shift what you owe from one card to another, often with a lower interest rate.
Example: If you owe $1,000 on a card with high interest, you might do a balance transfer to a card with lower interest, so you save money on what you owe.
• Debt Consolidation – This is when you combine many different debts into a single payment. It's like putting all your debts into one basket, which can sometimes come with a lower interest rate.
Example: If you have $500 on one card, $300 on another, and $200 on a loan, debt consolidation could combine them into a single payment, maybe with a lower interest rate.
• Credit Utilization Ratio – This is how much you currently owe on your credit card(s) compared to how much you could borrow. It's like looking at how full your borrowing "tank" is.
Example: If you have a $1,000 credit limit and you've borrowed $300, your utilization ratio is 30%.
• Minimum Payment / Monthly Payment – The minimum payment is the smallest amount you have to pay each month to keep your credit in good shape.
Example: If your credit card bill is $50, your minimum payment might be $10. But paying more is better for your finances.
• Current Balance – Just like your credit card balance, this is how much you owe overall, without counting upcoming interest.
Example: If you owe $700 on your card and there's no interest added yet, your current balance is $700.
• Credit Limit – This is the most you're allowed to borrow from your credit card before it becomes a problem.
Example: If your credit limit is $1,000, you shouldn't borrow more than that amount.
• Interest Rate / Interest Charge – Your interest rate is the cost of borrowing money, and your interest charge is the extra money you owe based on that rate.
Example: If you owe $100 with a 10% interest rate, your interest charge is $10.
• APR (Annual Percentage Rate) – Similar to your interest rate, the APR includes extra costs and fees, showing the full cost of borrowing.
Example: If your APR is 15%, and you borrow $200, the total cost for a year could be $30 (15% of $200).
• Credit Score – This number shows how trustworthy you are at repaying borrowed money. Paying debts on time raises your score.
Example: A high credit score means you're good at repaying, making banks more likely to lend you money at good rates.
