We all know that if you use a credit card you should pay it off in full each month. However, the reality is that millions of people use their credit cards to finance purchases and repay them over the course of time. The idea of purchasing a $2,800.00 television for less than $60.00 per month on a credit card seems hard to pass up. A payment of under $60.00 per month sound manageable – but the real question is how much is that purchase really going to cost?
A big mistake people often make is paying the minimum monthly payment on their credit card statement. If you paid the minimum monthly payment on your $2,800.00 balance on a credit card with an 18% interest rate, it would take you 436 months (over 36 years!) to pay off the balance. You would pay $7,331.00 in interest charges. In total that television would end up costing $10,131.00 and would, undoubtedly, not last until it was paid for.
If you chose to pay an additional $10.00 per month more than the minimum, it would reduce the repayment period to 162 months (13.5 years) with interest of $3,127.00 for a total repayment of $5,927.00.
Alternatively if you consistently paid $60.00 per month it would end up taking 81 months (just shy of 7 years) with $2,051.00 in interest being paid for a total of $4,851.00.
As you can see, regardless of the option chosen, credit card debt is hard to get out of once it is there. This example was a relatively small balance with a relatively low interest rate. As you can imagine, this situation is far more dramatic with large balances on high interest cards. Paying the minimum monthly payment on a credit card will leave you in debt for a very long time.