Here are my six top truths about credit cards and how their interest rates can screw you royally. Included is the math formula you should do BEFORE charging on your cards and then just making minimum payments or less than full payments. SIX REASONS HOW CONSUMERS GET SCREWED BY CREDIT CARD COMPANIES #1. The average consumer has four credit cards, with an average balance per card of $3,900 (that is $15,600 in debt in case you have not done the math!). Sure, there is safety in numbers, but is this the company in which you want to belong? I do not know about you, but I would rather belong to the â??below averageâ? customer group that has less than $1,000 in TOTAL credit card debt. These companies keep offering us new cards every week with higher credit limits and cash advances. (Think of how many you have received in the last year!) Basically, they insult our intelligence. Many customers are flattered when they receive their â??PRE-APPROVED PLATINUM VISA, just fill out the form below, sign and send backâ? letter. We think we are being rewarded for a job well done. The job, of course, is being able to spend money with the best of them, and pay it back better than most. Do not get SUCKED into this mental trap!! STOP TRYING TO KEEP UP WITH THE JONESâ??, THEY ARE HEADED FOR BANKRUPTCY ANYWAY. #2. If you make the minimum payment due on your average balance of $3,900 each month, your credit card will be paid off in approximately 39 years. It is called â??amortizationâ? or in the case of credit card repayment, I should say â??lack of amortization.â? In lay peopleâ??s terms, this simply means you have no real term set in order to pay this back. It is open-ended. They will let you pay on the same balance forever if you let them. When you buy an automobile, you may finance it for five years. You know that if you never send an extra dime but your monthly payment to that loan company of bank, you will own that car on the day of your 60th payment. You have none of these guarantees with credit cards. They are revolving accounts. I guess you can say they are like the Energizer Bunny, â??THEY KEEP GOING, AND GOING, AND GOING, AND GOING, AND GOING.â? #3. Because banks know that credit card usage is at an all time high, most of them are competing for each otherâ??s business. Many offer promotions like transferring balances from other cards to the new card they can offer you. If you transfer balances from other cards, they will charge you a reduced rate of interest on those portions that are transferred. This sounds like a great deal (going from 18% to a promotional rate of say 6 1/2%); however, most of them have a catch. For instance, if you do not charge something new on the new card each and every month, the interest rate goes up to the regular rate of the card (which is often high) or, if you make one late payment, you forego the lower promotional rate, and the rate again goes up to the regular rate of the card. #4. If you keep making your minimum payment only, your balance will rarely ever get paid off. Have you ever noticed how while your minimum payment due on your credit card is $85, your balance only came down $12? WHY? That is because we pay UN-Godly amounts of interest on credit cards. Even the so-called â??low interest rateâ? credit cards do not show their payments going toward bringing down their balances. All they do is just require a lower minimum payment. Sure, this might help your monthly outgo right now, but what is it doing to get you out of debt faster? NOTHING! That is because the MINIMUM PAYMENTS DUE ON CREDIT CARDS ARE BASICALLY â??INTEREST-ONLYâ? PAYMENTS. #5. Example: Your rate of 6.9% is a teaser rate. After 6 months, your rate will be 21%. The teaser, a.k.a., Introductory Rate Credit Card, has made credit card banks BILLIONS of dollars because so few consumers ever read the FINE PRINT. You know, the print that only the eyes of a 12 year old can read without getting a migraine. These credit cards come with stipulations. There are too many â??catchesâ? to name. But, I assure you they are there. Credit card banks do not make any money if they are financing your debt at below Wall Street Prime interest rates. So I leave you with one last thought on this topic, â??IF IT SOUNDS TOO GOOD TO BE TRUE, IT PROBABLY IS.â? #6. Most credit card payments are due on the last day of the month or the first day of the month. Most of us get paid on one of those two days also. If you pay your bill on the first and send it in the mail, payment is probably posted sometime between the 5th and the 10th of the month. Many credit card banks not only regard that as a late payment, but they charge you a late fee and interest on the entire balance. How are we supposed to ever get ahead??? How Your Credit Cards Interest is Calculated Example: You have a credit card with a $1,900 Balance, a 2% minimum monthly payment and a 21% APR. Calculate Your Minimum Payment: You take your balance and multiply it by your minimum monthly payment percent. ($1,900 x .02 = $38.00) Your minimum payment per month is $38.00 Calculate Your Monthly Percentage Rate: You take your APR (Annual Percentage Rate) and you divide it by 12. You do this because the APR is your annual or yearly rate and you divide it by 12 (the number of months per year) to give you the Monthly Percentage Rate. (21% / 12 = .0175). Your monthly percentage rate is .0175. Calculate Your Monthly Interest Payment: You take your balance and multiply it by your Monthly Percentage Rate ($1,900 x .0175). Your interest due is $33.25. Putting it all Together: You make a payment of $38.00 They charge you interest of $33.25 Amount applied to your balance is $4.75 Out of a $38.00 payment, $4.75 is applied to the balance so your original $1,900 balance is now $1,895.25. At this rate, it will take you 23 years and 7 months to pay off your credit card! So before you apply for a card or if you have cards already be sure and do the math to check what you're REALLY paying to have that card! clc
