Exactly what is a charge card’s “rate of interest” anyway?
A charge card basically offers you a brief loan for the month. If you pay it off completely throughout that monthly period, you do not spend for the loan– it’s an interest-free loan.
If you don’t pay off the loan in its whole– let’s state you invest $1,000 on your credit card however can just pay off $500 that month– then you have a balance on your card.
Your credit card balance is what the interest is charged on; typically, it’s someplace around 20%. In this case, you ‘d be charged $8.33 that month ($ 500 balance * 20% interest)/ (12 months).
The risk of credit card minimum payments
Let’s say you have a $10,000 balance on your credit card and you pay the minimum quantity, which is around 2.5% every month. How much will it really cost you?
If you only paid the minimum on your $10,000 balance, it would take you 452 months (over 8 years!) 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 simply pay the minimum month-to-month payment. How about if you pay the exact same amount each month so that you pay for the balance quicker gradually?
Let’s take the exact same $10,000 balance and pay $250 off on a monthly basis.
It will cost you over $6,000 in interest and take you 67 months to pay off the balance. Even if you don’t buy another thing because time!
This is why credit card companies are so exceptionally profitable, especially with youths who have no idea any much better.