Some basic rules of interest rates on credit-card debt include:
Interest rates are variable. Credit card rates are set by adding a spread, or margin to a base rate. Your base rate is often a widely used index, which is almost always a rate that changes periodically.
The spread that is added to calculate your rate depends on your credit history. If you pay your bills consistently and on time, the spread may be as few as 2 or 3 percentage points. If your credit history reveals that you make late payments, or have too much debt, the spread may be 5 or 6 percentage points or more.
Rates are higher than those for secured loans. Credit card rates are higher than those on home equity loans, in part, because they do not have collateral.
The stated rate is not your actual interest rate. The advertised rate on a credit card is often the card's simple interest rate. The effective interest rate, however, is your true cost of borrowing. It should include annual fees you pay to use the card. The compounded interest rate is a better barometer of your effective interest rate. For example, if your card has a rate of 12%, your monthly rate would be 1%. Because credit card interest is compounded monthly, the effective annual interest rate on a 12% simple-rate card is 12.68%.
Interest rates have a ceiling. Credit cards generally have a maximum interest rate, or ceiling. If you are delinquent in making payments, your card company may seek to automatically impose the ceiling rate, which can be devastating if you have thousands of dollars in card balances that are affected. Be sure to read the agreement with your card company to see what your ceiling rate is (often, it is 21%), and what terms may result in you having to pay the ceiling rate