Credit cards are easy, right? You have a credit limit. As long as your balance isn’t as high as your credit limit, you can pay for things with your credit card. When you pay for something with your credit card, you don’t have to pay for it until later. You pay interest on your credit card balance and as long as you don’t go over your credit limit, everything’s fine.

Well, not quite. Here are some of the most frequently asked questions about credit cards — and their answers, of course.

What’s interest?

In a nutshell, interest is money that you pay a lender for the privilege of using HIS money to buy something.

What’s this about “interest rates” and percentages?

The interest rate is a way of determining how much you’re paying for borrowing money on your credit card. It’s stated as a percentage of the outstanding balance on your card, usually as an APR or annual percentage rate. The lower the APR, the less interest you’re paying on the amount you owe.

Okay — so why would anyone choose a credit card with a high interest rate?

Most people don’t CHOOSE to pay a high interest rate. The bank decides what interest rate it will charge you, usually based on how much of a “credit risk” you are. They determine that by looking at your history of paying bills. If you’ve got a history of paying bills on time, then you’ll qualify for lower interest rates. If you haven’t ever had any bills to pay, or if you’ve had trouble paying your bills, that will show in your credit history, too. Since it’s a little riskier to lend you money, banks will charge a higher interest rate.

One other reason that people might actually choose a credit car with a higher interest rate is for the rewards or privileges that come with that card. If the card includes special perks that you want, they may offset the higher interest rate and make it worthwhile.

My card says that I pay interest on the “outstanding balance”. What does that mean?

Your outstanding balance is the amount that you owe altogether on your credit card. Credit card companies generally calculate what’s called an “average daily balance” for each month and base your interest charge on that. If you had a $50 balance from the first of the month to the twentieth, then charged a $400 computer, your interest will be computed on the average between 20 days at $50 and 10 days at $450.

What’s the “minimum payment”? As long as I pay that, I’m fine, right?

The minimum payment is the lowest amount that the credit card issuer will accept toward your balance. It varies from month to month, depending on your balance. Paying JUST the minimum balance may keep your credit card active and keep the credit card company from reporting your account as delinquent, but it will barely make a dent in the amount you owe. Whenever possible, you should pay more than the minimum amount. In fact, it’s best to try to pay off your balance in full each month to avoid paying interest charges.

According to a study by the Center for Responsible Lending, subprime mortgages produced more than $2 trillion in home loans but these loans have led to a loss in home ownership, not an increase.

A higher percentage of subprime loans end in foreclosure than prime loans. The CRL estimates that more than 15% of subprime loans orginated since 1998 either have ended in foreclosure or will end in foreclosure. It isn’t just new home buyers who have experienced loss of home ownership, these figures include borrowers who refinanced loans.

Foreclosure has long-term effects and homeowners who lose their homes may not get back into homeownership for ten or more years.

Subprime Lending is a Net Drain on Homeownership

As I have mentioned before, the IRS offers taxpayers with an income of less than $50,000 (increasing to $52,000 for 2007) the option to file their taxes online for free.

The tax services offered through Free File are provided by third party tax preparers such as H&R Block. These tax preparers have offered refund anticipation loans along with the tax filing but the IRS says it will prohibit those loans in the future.

Refund Anticipation Loans, or RALs, offer taxpayers a way to get their refund money faster but there are high interest charges and fees that are deducted from the refund, thus lowering the final refund the taxpayer receives. The attraction of getting that refund in a few days has cost low-income taxpayers millions of dollars in fees and the IRS wants to put an end to it.

The IRS says it is going to ban the marketing of refund anticipation loans to taxpayers who use the “Free File” online filing system.

It can be a sound idea to transfer balances from credit cards with high rates to a new card that offers a super-low rate on balances transferred from other accounts. But make sure you understand what to look for.

Pay attention to how long the initial rate lasts. Be aware that not everyone will qualify for the lowest rate advertised and your introductory rate could be higher. Know what the regular rate will be once the introductory rate period is over and if that low rate will apply to new purchases as well or only to the balance transfers.

Is the special rate for initial transfers only? If this is the case, then only the accounts specified when you first apply for the card qualify for the special low-rate and subsequent transfers may be treated as cash advances – in which case you could pay a hefty cash advance fee and a higher rate of interest.

Check into the late-payment and over-limit fees. Will a late payment cancel the low-rate and make your balances subject to a higher interest rate? Some card companies will raise your rate even if you are late making payments on another credit card account.

If you do transfer balances to a new card, avoid the danger of late-payment fees on the old account by continuing to pay on the old account until you have proof it is at a zero balance. Then you may cancel it and close the account.