Bank issued credit cards were introduced in 1946 and are now 70% of the United States population carries a credit card, with 34% of Americans carrying 3 or more cards.
Most people who carry and use credit cards have the utmost best intentions of paying their balance monthly so they won’t have to pay interest fees. According to the Federal Reserve, 55% of cardholders DO NOT pay their balance off monthly.
In 2011 all credit card companies were required to include a Minimum Payment Warning on all monthly statements. This is a table that tells you how long it will take you to pay off your credit card balance if you pay only the minimum payments and what you will pay back in interest.
One example that one my clients shared with me was a 25.99% interest Credit card with a balance of $4,487.71. The minimum payment amount was $145 – that’s a lot already when you’re on a tight budget. The Minimum Payment Warning table showed that if he paid only the minimum payments on this card, and never used it again, it would take him 18 years to pay it off and would end up paying a total of $12,607! If he paid just $181 each month and didn’t charge anything else, he could pay it off in 3 years and pay a total of $6,508.
But here’s what we see happening. More and more people are going green and opting out of paper statements. They are paying online, on time, but they never see that table to know the true impact of what they are doing and how much they are paying back in interest for items they forgot they even purchased with that credit card months if not years ago. You have the option of looking at your statement online when you’re paying your bill but that’s one more click, more effort put forth to take a look at it!
For those that are using a new 0% interest for a limited time card be aware. You already know that if you don’t pay it off in the limited time frame set, you will have to pay interest. What people don’t know is if they make one late payment they could possibly have to pay the higher-after-the-limited-offer interest rate for all purchases, even during the time remaining of the initial limited 0% time frame.
We would never pay 25.99% interest for a home or a car. Why are we paying that for shoes and a dinner out?