Credit cards are a convenient source of financing. But that convenience is expensive! At an average interest rate of about 18%, and low minimum payment requirements, it can take years to pay off a small balance. Let’s consider a purchase commonly financed with a credit card – a brand new HDTV.
A problem people get into with credit cards is only paying the minimum payment. In the above example it would take almost 20 years to pay off the TV by paying only 2% of the balance each month with a minimum payment of $15. Now, if a fixed payment of $75 was made each month, the TV could be paid off over the course of 2 years with just under $300 in interest payments. That is a huge savings in interest costs! Don't believe us? Try it out for yourself with the credit card calculator.
So today’s lesson is simple, if you’re going to finance a purchase with a credit card, you better have a repayment plan in mind. If you only pay the minimum, you’ll be paying forever! Even paying a few dollars more each month on your credit card bill can save hundreds or thousands of dollars down the road.
Why not blame the person down the street, if he/she went and got a loan they couldn’t afford, or used a HELOC to finance a conspicuous consumption lifestyle?