What is a credit card’s “rate of interest” anyway?
A charge card essentially provides you a brief loan for the month. You don’t pay for the loan– it’s an interest-free loan if you pay it off entirely during that month-to-month duration.
But if you don’t pay off the loan in its whole– let’s say you invest $1,000 on your charge card, however, can only pay off $500 that month– then you have a balance on your card.
Your credit card balance is exactly what the interest is charged on; usually, it’s someplace around 20%. In this case, you ‘d be charged $8.33 that month ($ 500 balance * 20% interest)/ (12 months).
The threat of charge card minimum payments
Let’s say you have a $10,000 balance on your charge card and you pay the minimum amount, which is around 2.5% each month. Just how much will it, in fact, cost you? The response is shocking. Get ready!
It would take you 452 months (over 8 years!) if you just paid the minimum on your $10,000 balance and cost you over $19,000 in interest alone.
Simply puts, you ‘d pay around $30,000 for a $10,000 balance.
That’s if you just pay the minimum regular monthly payment. How about if you pay the exact same amount each month so that you pay down the balance much faster in time?
Let’s take the same $10,000 balance and pay $250 off each month.
It will cost you over $6,000 in interest and take you 67 months to pay off the balance. If you don’t purchase another thing in that time, even!
This is why charge card business is so incredibly profitable, especially for youths who have no idea.