Ready for a crazy statistic from last year!? American’s paid more than $104 Billion in credit card interest in 2018.
That is right. $104B with a B. Americans are living in a world where financial literacy is necessary more than ever.
First, let’s define a clear principle everyone should live by. If you can’t pay your credit card in full every month, YOU SHOULDN’T HAVE ONE! Simple.
Have you ever read the fine print of a credit card application? Most of the time you will see something called an APR number. APR stands for Annual Percentage Rate. This is the interest you will pay if you carry a balance.
Here is where the credit card companies get you. The average credit card interest rate is 19.24% according to the basic google search I did. That is insane.
There is one trick the credit card companies use to get you to pay interest. It might not be what you think. Most credit card companies show you a seperate payment option for the minimum payment required. That is right, they could show the current balance and leave it at that; yet, they want to show you the minimum payment.
I believe they want to show you this number to make you feel like that is a great option. What they should be required to show (by law IMO) is the amount that will cost you in interest. That is right. Right next to the min required payment, they should show the cost to you in interest if done. Could you imagine if they were required to do that what that would do to people?
I am a firm believer if people would change their behavior if shown this data in a different way. People are emotional creatures and nobody wants to pay someone something they feel isn’t fair. It is criminal what credit card companies are doing to people. People don’t understand what is actually happening when they make the min payment. Like compound interest works for us in our favor for investing long term, the same thing can be said for credit card companies.
Know what you are signing up for before applying for credit cards. Know the difference between paying the min payment and paying your full balance. There are massive implications of not paying your credit card in full each month.
- Paying the minimum payment required on a credit card is not winning.
- Don’t sign up for a credit card if you can’t pay your balance in full.
- Credit card companies should be required to put a disclaimer explaining the actual cost of paying the minimum payments on your credit card.