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The Extreme Cost Of Poor Credit Card Use

If you make just the minimum payment, it could take years to repay your debt.In writing about credit cards for years, I’ve become an advocate for responsible use.

You can save hundreds if not thousands of dollars annually by using your plastic daily.

But there is a dark side to this equation: If you don’t know how to use your credit cards, you could end up paying a small fortune for routine purchases.

Some credit card customers simply don’t understand how interest rates, penalty fees and default APRs work. Before they know it, they’re saddled with debt they never thought they owed.

I’d like to provide an example of just how quickly credit card interest can add up and show why it’s crucial that a statement be paid off in full every month.

Bobby BigTime has a credit card with an 18% APR and a credit limit of $5,000. After buying a new dining room set for $4,000, Bobby decides he’s going to make only the minimum $100 credit card payment every month until the balance is paid in full.

Do you know how much money Bobby is going to pay back and how long it will take to do so?

After five years and $2,100 in interest, Bobby’s $4,000 purchase is now completely paid off, but at a 53% premium!

That’s assuming he’s able to meet the $100 payment requirement each month and every payment is made on time. One slip up could increase the interest rate as well as add fees that make the overall amount paid off much larger.

The high debt-to-credit ratio could also decrease his credit score, potentially costing him even more on future credit lines.

For habitual minimum payment makers, using a credit card is the one of the worst financial decisions that can be made.

Your goal should be to pay off your debt as fast as possible, then begin to budget monthly expenses to ensure you don’t fall into the credit card debt trap again.

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