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Minimun Payments & Your Credit Cards
By Molly's Brother | August 30, 2006
Sit down because I am about to state the obvious: Businesses exist to make money from consumers. (Shocking, I know.)
Credit card companies are a business and you, the holder of the credit card, are their consumer. I’ve blogged about how credit card companies make money off of you by charging various fees for varios things like using the card for overdraft protection, by going over your credit limit, or by charging you late fees. Something that is often overlooked is how much money credit card companies make by expecting you to only pay the minimum payment.
I took a virtual stroll over the bankrate.com and used their calculator to help me illustrate exactly how much money credit cards make off of you if you only pay the minimum amount due.
Let’s say you have a $5000 balance on your account with an 18% APR. Suppose that your credit card company calculates your minimum amount at 3.5% of your total amount due. With these factors plugged in, your monthly minimum is $175.
If you only paid the $175 minimum due on your card, you’ll pay off your $5000 debt in a swift 180 months. That’s a cool 15 years, my friends. And that’s if you don’t incur any additional debt along the way.
You’ll also fork over an additional $3625.83 in interest along the way.
We’ve heard about that “gazelle intensity” that Dave talks about. It’s time to get serious about paying down that debt. Find ways to save money and find ways to make more of it. And throw it at that debt so you don’t have the chains of minimum payments shackled to and limiting your financial life.
Topics: Credit Cards |
September 11th, 2006 at 3:54 pm
Credit cards:
I have paid of my mine- while I was making “large” payments every month to pay down my balance I kept getting letters from my credit card saying that they hoped they weren’t “losing my business” Yeah, Iguess they were pretty sad about the loss of all that interest! Now that I pay my (small) total balance monthly I feel really good. Saving money too!