Thank you for this video, I sent it to my children, my parents, my grandparents, my friends, my rabbi, and everyone else I know. This video is the cause of my joy for life, thank you, Mr. Navickas, thank you.

Thank you Joe, you did a great job explaining how purchase APR on credit cards work. Now I have my own Excel APR spreadsheet. Thank You Sir,

Thank you so very much for this video! I really wish there was this information when I was in high school and got several credit cards!

Am sending this to my daughter! Good job, this really hits home. i just wish I knew how to use excel this way.

I am 27 and i just got my 1st ever credit card delivered to me. I really had to look up for tutorials on how the interest works as my friends who have credit cards can't even give me any answer when I ask them. This one's really helpful! Thanks a lot!

@cujpn5

5 жыл бұрын

Thanks! How is everything going with your credit card? Make sure you pay it off each month!

@jeremywilliams8811

5 жыл бұрын

If you need to watch videos about the interest you should probably stay away from credit cards, cause obviously you dont plan to pay it back

well said. it was a great deal of help thanks so much.

Just what I was looking for. Thak you!!

How did you reference the cell properly? I try to drag down and copy but it is not working...please help! thank you

Hi Thank you the information. real help!

Great video.

Hi Joe, could you please share your spreadsheet for reference!?

Hi Joe, What is your opinion on mortgage acceleration using a HELOC to make a $5000 principle payment and deposit all income into the HELOC and use the HELOC to pay bills with positive cash flow? Then when the HELOC balance is ZERO after a couple months make another principle deposit and do it all over again? My mortgage is my only debt at 2.25% for 15 years and been researching on how to pay it off as fast as possible. I have a positive cash flow of $1000 to $2000 monthly and was wondering if this strategy is good for me?

@cujpn5

7 жыл бұрын

Sorry your message went to spam, just discovered it. I would really make sure you have emergency money set aside. You are in great financial position to obtain a 2.25% fixed 15 year mortgage. If you look at your amortization schedule you will be surprised how little interest you will be paying in years 11-15. You might consider investing your current cash position because you should be able to beat the 2.25% you are borrowing. I would not leverage by pulling a HELOC because you are borrowing at a higher rate. Age does matter too. If you are on the back end of working, paying off a home is important to most, if you are in the middle or early working years, the government still recognizes the tax shelter and itemized deductions. Look at your top tax bracket you fall under and that is what you are saving on income taxes by itemizing. If you rush out of itemizing while you are working, you could be making a tax mistake over saving a smaller sum of interest on a mortgage. I would work with your financial planner or accountant to get more information. There is nothing wrong with being conservative with your money and avoiding interest but you also have to weigh it against your tax savings.

Hi Joe, the example was good. What happens when customer makes a partial payment during the billing cycle?

@cujpn5

9 жыл бұрын

***** Sorry I didn't see your question. When you make a partial payment your daily balance will go down from that point moving forward. Remember that interest is compounded each day so if you do pay it down a little, your interest payment will decrease.

I think in some instances when used correctly with velocity banking it can be a lifesaver for some people to get out of debt including front-loaded mortgage interest. I'm doing it and it works!

Thanks!

0:09 Don't forget about payday loans, one of the worst financial products out there.

@cujpn5

7 жыл бұрын

Yes, those have very high finance charges.

Hi,How would you do this for monthly instead of daily and include all interest and new purchases etc.ThanksJason

@cujpn5

8 жыл бұрын

+Jason Parker To calculate interest use this formula Interest = Principal * Rate * Time Principal would be how much you owe, the APR would be the rate, and time for one month would be 1/12. If it were compounded quarterly it would be 1/4, semiannual would be 1/2, daily would be 1/365. So lets say you owed $10,000, 5% APR, compounded monthly you would do the following. 10,000 * .05 * 1/12 = $41.67 Hope this helps.

What's the average daily balance in this example? Is it average of new balance or average of Ending balance?

@josephnavickas5559

2 жыл бұрын

It is an average of all of the daily balances. The computer systems can calculate just about anything.

when you type in the finance charge column =D6*$b$2 what does the $b$2 mean?

@chigozieobialor1245

8 жыл бұрын

+owlbirds6 It means use only the value in cell b2 for the b column through out all the calculations! In the first calculation he could have just used b2 if he wished,he changed it to $b$2 because subsequently he will use the same value of b2 in other rows i.e. subsequently set b3=b2,b4=b2,b5=b2 etc.Hope this helps :)

@cujpn5

8 жыл бұрын

+owlbirds6 The $ sign put before the b and after the b make that cell reference absolute. As I copy the formula it will not change the absolute cell reference. Chigozie explains it further.

@andrewgriffith2173

4 жыл бұрын

@@cujpn5 thanks for this. Quick question. Shouldn't your finance charge/daily periodic rate formula be multiplied by 30(days in the month) ? I ask because your 18% interest rate with $3 finance per month seemed low to me-as someone who has a credit card balance 😉

Something does not seem right here. The formula charges a daiy charge even when no purchases are made. If you change all of the purchases to 0, the formula is still applying a daily charge....is this correct? I guess so...geez.

@cujpn5

5 жыл бұрын

Bryan, better late then never. When you compound interest you can compound it annually, monthly, or daily. The credit card is compounded DAILY! The formula for interest is I=P*R*T. So on a credit card, the T is 1/365. They pull the principal on whatever balance you have at the end of the day. UGH. I tell my students, you can either own the bank or the bank owns you. You either have 2,000 shares of Citibank or you owe them money the rest of your life!

@ejavenger

3 жыл бұрын

@@cujpn5 Doesn't this start after the first month. I have put 150.00 on a card and the next month I only had 150.00 total balance. If you pay it off on the next statement you don't get charged interest. This only applies after the next billing statement or a minimum payment is made.

@josephnavickas5559

2 жыл бұрын

@@ejavenger Correct. You only get charged interest if you do not pay your balance in full. 2/3 of Americans carry credit card debt and are being charged interest every month.

Does this apply to line of credit loans as well?

@josephnavickas5559

2 жыл бұрын

Yes, however you have to check the fine print on how often they compound the interest.

When a credit card or a finance company says 0% interest rate, is that really true?

@josephnavickas5559

2 жыл бұрын

Yes, it is true for the time frame they give you. For example, 0% APR for the first 12 months means any money you spend on it during that time frame will not incur a finance charge. You will have to make a minimum monthly payment still. Once the 12 months is over, you will start incurring the stated rate, usually in the high teens if you haven't paid the card down to zero.

This is misleading. The daily finance charge only applies IF you don't pay the balance at the end of the billing period, and is calculated at that time. If you start with an $8,000 balance and charge $500 during the month, at the end of the billing period you could pay $500 and not be charged a finance charge for that $500. The $8,000 would though. So the Daily finance charge is only useful to calculate what the finance charge would be if you got a $200 pair of pants on day 18 of your billing cycle. Then the DFC would be for 12 days only (30 days in a month - 18 days past the last billing cycle)

@cujpn5

8 жыл бұрын

Once you have a balance that is not paid by the due date, the finance charges start on whatever the balance is at the end of each day moving forward multiplied by the daily periodic rate which is on the bottom of your statement. Remember that the finance charge is charged daily. If you had a $8,000 balance it would be 8,000 * APR * 1/365 to get the finance charge. You would then add that to the next days balance PLUS new charges. It doesn't work like you explained above because once you have a balance, the balance gets used to calculate the finance charge everyday.

@maa4747

8 жыл бұрын

For example, If I had carried over a $1 balance past the due date from the previous month and made a $10,000 purchase at the beginning of the next billing cycle and paid $10,001 IN FULL at the end of the billing cycle, I would be charged the daily interest rate for $10,001 for 29 days??? I always have paid my credit card in full and never carried a balance to trigger a daily interest rate to incur.

@cujpn5

7 жыл бұрын

Yes. Once you carry a balance after the due date the interest gets calculated on the balance everyday until it reaches zero. You are correct above.

@maa4747

7 жыл бұрын

Thanks for the info, do you know if it works the same way with a home equity line of credit (HELOC) when a balance is carried over?

@cujpn5

7 жыл бұрын

maa4747 The equity line does carry an average daily balance. So whatever the daily balance is it is going to get compounded daily. However HELOCs have MUCH MUCH lower rates than credit cards and can be written off if you itemize on your taxes. You can not write off interest on credit card loans.

But what if you pay off your new balance by the due date

@cujpn5

3 жыл бұрын

No interest is calculated as long as you pay by the due date.

In Pakistan they are Charging 40% APR

@Perfectsound88

7 жыл бұрын

1US$=105 PKR

@ladylucas60

5 жыл бұрын

That’s awful

@josephnavickas5559

2 жыл бұрын

There are some Americans being charged 30% on their cards. Most Americans are between 13-18% APR.

Mortgage is so much worse

@cujpn5

5 жыл бұрын

Depends on the type of mortgage you are using. The interest you pay on your mortgage is tax deductible. Everyone needs a home. In the LONG run it is better to have a mortgage for 30 years than to rent during that same time frame in most instances. You are building equity while receiving a tax deduction.

joe mama

Pleas look at the top of page seven. It works exactly like I described. www.bankofamerica.com/content/documents/visa-signature-en.pdf. You would think it wouldn't but it does. I found out about this six years ago when I was reading a financial book from the Acturial Association. Couldn't believe it! Passing it along to my students. They need to be educated better on how these loans work.

@AgeLocTV

7 жыл бұрын

Hi Joe, thanks for the video and the link. I created the same excel sheet as yours and followed every step of your video and got the same result so I went ahead and used it to check my BofA credit card statements and a few of them did not come up correctly on the total month finance charge. Can I email you privately? I really need help with this please.

@cujpn5

7 жыл бұрын

Was the finance charge you calculated higher or lower than what the credit card company put on your bill?

@cujpn5

7 жыл бұрын

I like this explanation, the author does a nice job: blog.readyforzero.com/how-does-credit-card-interest-work/#.WL92UjvytPY For Students here is a simple way of seeing it. However the interest does compound daily on a credit card. This .pdf used to show this but they lightened up the explanation. www.actuarialfoundation.org/pdf/BYF2015/byf-student-book-1.pdf

Don’t understand please make it simple

Here we go again. Talk, talk, talk. For how many minutes must l listen to talk about a watch until I get to the meant of the formulas. BYE