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How Much Your Credit Cards Are Really Costing You? |
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by: Debbie Dragon
Since the average American family has several thousand dollars of credit card balances to deal with, it's probably a good idea to have an idea of how much those credit cards are really costing you. At first glance, you might think they're costing you $40 a month, or whatever your minimum payment is – but the reality is, credit cards cost you a whole lot more than you actually spend using them if you carry a balance from one month to the next.
Using a credit card as a budgeting tool can actually help you meet financial goals. The problem becomes when we spend more than we can afford to pay back in a timely fashion, and continue to use credit as an extension of our available cash. Learn to use a credit card responsibly to avoid paying too much in fees and interest.
If you think it's no big deal to carry a credit card balance from one month to the next, here's an example of how much your credit cards are really costing you:
Interest Charges
Credit card interest rates range from 0% to 25% (or more!). The average interest rate is hovering around 15% The longer it takes you to repay your credit card debt, the more you'll pay in interest. People who pay just the minimum amount due, or less, may never get out of debt due to interest charges accumulating faster than your payments reduce your overall debt.
Interest rates on high credit card balances can cause you to pay two to four times as much as you actually charged on the credit card if you carry the balance from month to month instead of paying it off in full when you get the statement.
If you're able to get approved, you might be better off transferring your balances to a lower interest credit card, or paying them off with a low interest loan.
Keep an eye on all communications received from your credit card company because they can also raise your interest rates as long as they give you 15 days notice of the rate change.
Late Fee Charges
If you tend to forget to send out your payments before they're due, or run into financial problems that make it impossible to pay your bills before the due date, you should know that your credit cards will charge you a late fee of about $40. The late fees become part of your total balance owed and are subject to interest rate charges. Additionally, if you are late, many credit cards will also increase your interest rate.
Sometimes a credit card company will waive the late fee if you call and ask. Also, if you know before hand that you may be late making a payment, call ahead of time and request a grace period.
Annual Fee Charges
Not all credit cards charge an annual fee, but some of the best rewards cards have steep annual fees. If you're not getting a lot of value out of your rewards program the annual fee is a complete waste of money. Average annual fees range between $35 and $100. If not paid in full before the next billing statement, these annual fees are simply added to your card balance and subject to being charged interest.
Sometimes your credit card company will be willing to waive an annual fee if you call and ask. You may need to suggest you might move your balance to a different credit card to stop paying annual fees in order to get them to do it, but it's worth the try!
Falling behind on credit card fees and debt will start you on the vicious cycle of credit card debt.
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Credit Card Articles > Credit Card Education > How Much Your Credit Cards Are Really Costing You?
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