So everybody already knows that credit card interest is just a total waste of money and in some cases, it can really mess up your finances. like for instance if you have way too much credit card debt and you're only making the minimum payment 2022.
you can spend up to 10-15 years of making those minimums to actually get that debt paid off and that's assuming that you don't accrue more debt over that time period.
How Expensive is Credit Card Interest?
Honestly, credit cards can be a very bad thing but I think some of us think that they're worse than they really are and that's what we're going over.
now the biggest point that I want to make here regarding credit card interest is that a lot of people seem to think that the interest rate is how much they have to spend every single month on their balance.
this is just not true because the interest rate is always going to be an apr which stands for annual percentage rate and so that means that the interest rate is spread annually and you have to divide that by 12 in order to know how much you're probably going to be spending every single month on interest.
so as a really simple example here let's just pretend that you have a thousand dollar balance on your credit card that you're accruing interest on and you have a 12 annual rate on your credit card.
so you're going to take 12 you're going to divide that by 12 because there's 12 months in the year and then you're going to end up with 1 percent and this is about how much you're going to pay every single month on that balance.
so 1 of a thousand dollars is just 10 bucks and that's how much you're going to be spending on your credit card not what everybody else thinks. This is How Expensive is your Credit Card Interest?
which is that you're going to take the thousand dollar balance and you're going to multiply that by 12 which is 120 bucks and that is not how much you're paying because you're on an annual rate not a monthly rate like some people tend to think it is.
so just remember that the interest rate on your credit card is always going to be an apr meaning annual percentage rate.
so just divide that by 12 if you want to know generally how much you can expect to pay an interest on the balance per month on that credit card.
i also want to make it clear that if you are doing the math yourself don't expect it to be entirely accurate because there's a lot of different factors involved in charging credit card interest like for instance how much you spent during the grace period the method in which the credit card company is actually charging the interest, and different things like that so it's never going to be totally accurate if you just do this basic math. but it is a good idea of where to start.
so what it really comes down to is if you are going to be paying interest on your credit card don't fret because it's not going to be the end of the world.
like i said if you do have a thousand dollar balance at 12 you're probably going to be paying about 10 dollars in interest per month and not 120 bucks a month like a lot of people think you are.
so it's not the end of the world just get the thing paid off and i'll always advise to pay off your statement balance in full every single month by the due date that way you never have to pay any interest and you never have to worry about any of this stuff that I'm even talking about.
because it's already taken care of now if you are interested check out what happens when you make a minimum payment.
So that is it for today How Expensive is Credit Card Interest?