The True Cost of Credit Card Interest

Cards offer many advantages. It gives you a form of security that you can use to do everything from booking hotel rooms to renting a car. It is valuable when you run into an emergency and need to access cash fast. They can also offer points or rewards. As long as you can pay your balance off IN FULL every month, you can buy goods and services today and not pay for them till your next statement free of interest. With that said, if you don’t pay your credit card balance in full each month (which often happens with many card holders) you’ll pay interest on that loan.

Let’s say for example that you receive a credit card offer in the mail. You can borrow up to $2000 and only pay $40 a month. The interest rate is steep at 19.5% but the payment is still $40 a month. Sounds great right? You’ve been wanting the new Sony 3D Television and now it’s yours for only $40 a month. How great is that? Well let’s weight the true costs of that television.

Your credit card balance is now $2000. The minimum payment is 2% which is $40 a month. Every month your minimum will drop as the balance becomes lower. If you decide to pay a fixed minimum of $40 every month then it will take you 104 months to get rid of your debt and you will pay $2,153.99 in interest. If you chose to pay the minimum only, it will take you over 300 months or 25 years to clear off your debt and you will pay over $5000 in interest.

This means that you have now paid $4,153.99 or more for your television which is a lot more than you expected. To make matters worse, think about how much you could have earned had you invested $40 a month earning interest.

It is easy to get caught up in offers that are “too good to pass up”, but the question here is “Who is it good for?” Definitely not you.

Educate yourself on the true cost of credit and more by visiting our website at www.prudentfinancial.net.