When you get your credit card statement and you haven’t paid the bill in full, you’re going to find those awful finance charges.  They can range anywhere from 0% all the way up to as much as 79%.  I’m not lying on that one!  Every credit card is going to vary and the rate will all come down to you, and your card.

When you’re looking to figure out your finance charges, it really isn’t hard to do.  You can either do it on paper, or if you wish, you can use online finance charge calculators that do the dirty work for you.

To do it on paper, here’s what you have to do, in order to figure out your finance charges on your credit card statement, or any other credit that’s going to charge something such as this.

Before we start, let’s take a look at how a basic loan works.  You’re going to have your principal, which is the amount of money that you are going to borrow, and you’re going to have your interest.  As we all know, this is the money charged in order for the lenders / banks to make money.

When you’re ready to start your formula, you’re going to need to following to figure out your finance charges.

• Your principal = The amount of money that you have borrowed.
• Interest rate = What are you being charged in terms of interest?  This should be right on your bill / statement.
• Length = If you have a “timed” loan such as a car payment, etc, you will want to mark this down as well.

Finance Charges = Principal x Interest Rate x Length of the Loan

Since the interest rate has to be in the forms of a decimal point, you will want to divide it by 100.  For example, if you have a 20% interest rate, your number will be 20/100 = .20.

Next, you will want to take the length of the loan and multiply it by 12, if you’re paying monthly, or 52, if you’re paying weekly.

Let’s take a look at an example:

Let’s say that you go out and purchase a boat.  You take out a loan of $5,500 at a 10% interest rate, and it has to be paid back over 5 years monthly.

Let’s take the principal ($5,500) x 0.10 x 5

We get $2,750

Now, we can see how much we’re going to owe as a total.

$5,500 (principal) + $2,750 = $8,250

As you can see, it’s fairly easy to figure out the formula, and it also opens you eyes up to how much interest rates can eat away at your bill.  This is why I always recommend that you pay off a bill as early as possible!  By doing so, you can avoid a lot of interest rate charges.