How Credit Card Interest Works – Part 3

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Let’s make sense of your credit card bill. Financial Expert Eric Roseburg shares some tips for how to use your credit card responsibly and how to calculate your monthly interest rate. Watch the video or read the transcript to follow.

Eric Rosenberg:

Welcome back. 

Last time we talked about the math behind how credit card interest works. Now we’re going to look at how credit card interest quickly adds up over time. Interest can add up over time. When you go to the store, maybe spend a dollar here, a few dollars there, but that adds up fast, and if you don’t pay it off in full, it can become a huge expense, maybe even doubling what your original purchase cost. For example, I did the math on a $5,000 credit card balance at 24% APR, with a $200 minimum monthly payment. If that was your credit card and you didn’t make any more charges on it, it would take 163 months to pay it off. That’s more than 13 years. And your interest charges would be over $4,700. That’s almost as much as the original $5,000 balance.

That is why it’s so important to pay your credit cards off as quickly as possible. If you pay them off over a long time, those interest charges will add up very quickly. You might see credit cards with a 0% APR period. Let’s talk about that for a minute, so you understand how those work too. 0% APR periods are a time often up to a year or two after you open a credit card, where you won’t have to pay any interest on charges, and you might get to have a 0% interest period on balance transfers as well. If you do that, that could save you money over time, that’s not necessarily a bad strategy, just make sure you always pay off the entire balance by the end of the introductory period before interest kicks in, or you might end up right where you started paying credit card interest that you don’t want to spend.

One good tip to follow is to only use credit cards if you can use them responsibly. It’s easy to use credit cards for fun purchases like concert tickets, or a day at a theme park, maybe a new item to furnish your house or a fun day out. But eventually you have to pay those purchases back, and sometimes with interest. So always think hard and don’t make purchases you can’t afford with a credit card. If you’re struggling with your money, you have free tools available as a PayActiv member, head on to the PayActiv app, and you can find tools for budgeting that will help you plan to pay off those credit card balances well before the minimum payments would have them do.

If you’re struggling, you can also schedule a no cost financial advising session. Again, head to the PayActiv app, and you can connect with a financial advisor totally for free to help review your finances and make sure you’re on track to either pay off your credit cards, stay out of debt, or meet any other financial goals you have in mind. You work hard for your money and you should live the life you have earned. Thanks for listening, thanks for watching. 

Have a great financial day.