Say NO to minimum payments on credit cards
Helpful financial advice
Minimum payments on your credit cards mean maximum fees.
Banks and stores deliberately make the minimum payments small. This means you can borrow large amounts of money without a sizeable monthly payment. What it also means, and it is not obvious, is that there will be a large compounded interest amount on the unpaid balances for the banks and stores.
On every credit card statement you will see –if you only make the minimum payment — how long it will take you to pay off your principle as well as interest. Read this very carefully.
For example, on a balance of $1664 it will take 14 years and 8 months to fully repay the outstanding balance, assuming you only make the minimum monthly payment of $10.
Also, on a balance of $178.00 it will take 1 year and 7 months to repay the total balance if you only make the minimum payment of $10.
Here is how to calculate the real interest:
What would the interest be on a large minimum payment of a $150 on a $5000 credit card?
The credit card statement says its’ annual interest rate is 19.99%. But is it?
- Take your annual interest rate 19.99% and divide it by 12 months to get your monthly rate, so 19.99% divided by 12 = 1.67% for your monthly interest rate.
- Take the $5000 balance owed and multiply it by your monthly rate of interest, so $5000 X $1.67% = $83.25 which is the interest paid .
- Divide the $83.25 into your monthly payment of $150. That equals 55.5% which is the real interest you are paying when you only make $150 as a minimum monthly payment!
Think about it. It’s not hard to understand why the banks and stores like minimum payments. They make great profits at your expense.
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