My credit card statement recently changed and now includes a box detailing what it would cost me to pay back my balance under a couple different scenarios. (I'm assuming this addition is part of the new credit card regulation/rules imposed by Washington.) The information highlights what a terrible idea it is to pay off the minimum balance on a credit card (or pay off the card in any way that takes a bit of time for that matter). Consider the following from a recent statement of mine:
- I had $2,888.74 in charges (FYI, $1,000 of that was for gold dollar coins)
- If I made no additional charges on the card and only made the minimum payment ($28) each month, it would take me 18 years to pay off this debt and end up costing me $5,546.01.
- If I made no additional charges on the card and only made a payment of $95.36 each month (not sure how they came up with this amount -- maybe it's the 36-month pay-off amount), it would take me 36 months to pay off this debt and end up costing me $3,432.96.
It's pretty clear from these numbers that making the minimum payment only is a very bad deal for the cardholder. I assume that's the point of the information -- to make people see what a bad deal it is to hold on to credit card debt and to get them to pay it off ASAP.
BTW, my card has a 13.24% APR. The numbers would be much worse for a cardholder with a 15% or 20% APR.
Why not pay the stupid thing off an quit buying crap you can't afford. That's what I did and I have no regrets. And I could care less about not getting the airline miles, bonus points, or whatever bait they used to get you to sign up. I never met a rich person who said they got that way from their airline miles or bonus points.
BTW, I wouldn't buy gold at today's prices either, especially on credit. The amount you potentially gain is offset by the interest you're paying because you put it on credit. And when gold takes a dive (and it will eventually), you'll still be paying interest on a depreciated asset.
Posted by: M Gardner | April 21, 2010 at 11:56 AM
I think it's weird that many people apparently didn't realize this before they came out with the new credit card bills.
Even if you can't do math, all statements always show/showed how much interest they charge you each month!
Posted by: MC | April 21, 2010 at 12:43 PM
I also noticed the new disclosures on my credit card statement. This could actually be a protection for the bank. . . now no one can use the excuse "but I didn't know!" when complaining about their escallating debt.
Posted by: Christy | April 21, 2010 at 12:47 PM
M Gardner - I am sure this was an illustration for educational purposes and FMF pays his credit cards in full. As to gold - to buy or not to buy is an investment decision and only future will show if it was right or wrong. At least if you buy using credit card that you pay in full you get a bit of it back. And as FMF pays in full, he doesn't pay any interest.
BTW - for "no credit cards ever" crowd - I think the recent events with the volcano in Europe and travelers stranded demonstrated how useful credit cards can be in certain emergency circumstances. I have to say that if I were to be stranded in Europe, I'd much rather have a credit card with me...
Posted by: kitty | April 21, 2010 at 12:48 PM
M Gardner --
1. FYI, I only buy what I have budgeted and need/want.
2. I never met a rich person who said they got that way from saving money on small purchases, creating a side income to supplement their career, or paying off debt either. But that doesn't mean those things are bad ideas.
3. I buy gold dollar coins -- much different than buying gold. (Click the link above that says "gold dollar coins" and you'll find out how different.)
Posted by: FMF | April 21, 2010 at 12:56 PM
Just for the record, those are my actual charges and what I would have paid if I made partial payments. But as kitty said, I do pay my cards off when they are due and never let the balances carry over.
Posted by: FMF | April 21, 2010 at 12:59 PM