There are two basic types of interest that every person who uses debt or credit cards needs to understand: simple interest and compound interest. Over time, there is a significant difference between these two methods of calculating your interest on a debt. Part of your strategy to eliminate debt will probably involve getting rid of debts that use compound interest first.
Often, the rate you’re quoted on a loan or a savings account is not what you actually pay or earn. Depending on how often the actual interest due to you or the lender is calculated, your rate may be noticeably higher than the “nominal” or stated rate. APR stands for annual percentage rate, and refers to the actual cost of borrowing the money based on the frequency of the interest calculation. For example, a 6% loan may have an APR of 6.15%, depending on the calculation period. APY is identical to APR, except that it calculates the actual rate that our savings earns, instead of the interest we pay on a loan.