The True Cost of Credit

Cost of credit
Everyone loves talking about credit card points, but I don’t hear much about the dark side of credit cards. The loan shark interest rates!

This example assumes a 19.49% APR (Annual Percentage Rate, or the percent of your balance you have to pay in interest each year) and a 2% monthly minimum payment. With these rather average numbers for a credit card, that steal of a TV at $799 would end up costing over $1,800!

But worse than that is the MENTALITY it feeds. You buy the TV, then the bill comes and it says “Minimum payment: $25”. Hey, not bad! Only have to pay $25 a month and I get this 4K Super HD TV with a moonroof! Why not go buy a new couch to go with it for another $800. That would only bring my payment to $50! I can handle that. A few months go buy, then the next big purchase comes. A few years go buy, and suddenly you can barely make the minimum payment and you have a monster of debt on your back that’s going to take years along with a herculean effort to pay off. OUCH.

Here’s a PFC rule: Never pay credit card interest. Period. If you use a credit card, treat it like a debit card and pay off the balance IN FULL every month. If you can’t afford to pay it off in full, don’t buy it. Work extra hours, pick up a second job, get a roommate, buy something cheaper, sell stuff you’re not using, whatever. Don’t take the easy way out and start racking up credit card debt because it will come back to haunt you years later, then you’ll have to do all that uncomfortable stuff and more.


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