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Escaping the Credit Card Trap
It is very convenient to use credit cards. You just reach into your pocket, and the purchase is easily made. But if it is not paid off every month, the balance grows steadily. Interest rates are normally in the 18-21% range. Even the "low rate" cards are often just for 6 months at the "low introductory rate". If a payment is late, they often recalculate interest at 21%. And late charges, over the limit charges, and cash advance fees still apply. Using credit cards is easy, but adding up what they cost is more difficult. How long does it take to pay off the average credit card? When will the statements finally show "paid in full"? Let's find out by doing the math. If a card has a $10,000 balance at 21% interest, the interest charged is 21% per year. If divided by 12 months, the monthly interest turns out to be 1.75% of the balance ($10,000). This 1.75% is equal to $175, which is all interest, due each month. Since most card lenders require a "2% of balance minimum payment" each month, you are required to pay $200 this month, with the minimum payment declining each month, always at "2% of the declining balance". This is the real secret of credit cards: they do not pay off quickly, because the payment keeps going down. As shocking as it seems, this card will take over 60 years to pay off, always paying 7/8 of the monthly payment to interest. So the moral of the story is: keep your payments level, don't lower them. If you continue to pay $200 each month even when the minimum payment is lowered, it will only take 10 years to pay off. Or don't use credit cards: the interest cost is 1/5 of the balance each year. © 2002-08 Mike Norris Law | All Rights Reserved USE OF THIS WEBSITE OR EMAIL DOES NOT CREATE AN ATTORNEY CLIENT RELATIONSHIP, NOR WILL IT GIVE LEGAL ADVICE UPON WHICH YOU CAN RELY |
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