Credit Cards
What credit costs
When you buy something on credit, you make the things you buy more cost more because of the interest. If you buy $500 of furniture, but pay it off over a few years, the furniture may really cost you $700 or $800 (for example with a credit card that has a 20% interest rate). That does not include any late fees or other charges you might pay.
Three things affect how much you are paying when you use credit:
- the interest rate on the card
- the amount of your monthly payment
- any late fees or over limit charges (these do not help pay down your balance)
If you pay only the minimum every month, it will take many years to pay off your debt. The credit card company sets the” minimum” so that you end up paying more dollars in interest than the amount you charged in the first place.
Paying off a $1,000 balance on a card with 19% interest |
Monthly Payments |
Time to pay off debt |
Total interest you will pay |
Making the minimum payment (set at 2%) |
22 years |
$2,400 |
$20 each month |
8 years |
$1,000 |
$30 each month |
4 years |
$450 |
$40 each month |
3 years |
$300 |
Source: Bankrate (years and amounts have been rounded-off)
Click here to visit a website that will show you how long it will take to pay off your debt at different payment amounts.
Another web site will show you the real cost of paying just the minimum amount.
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