The Australian gummint has recently brought in new legislation that forces the credit card providers (Visa and Mastercard) to let their customers know exactly how much they are paying in interest and fees.
My last statement included the following:
Yeah, no shit Sherlock.
But then they itemised my account…
Fifty one years?? My balance is only 4k!!
Yeah, yeah, I’m paying quadruple now AND not using the card at all…in which case I should have the fucker ready for a ritual cutting and burning in about 12 months. But fer’ fuck…how can a $4,000 balance take fifty-fucken-one years to pay off??
Easy. Say your minimum payment is $20 and the monthly interest on your balance is $15. You’re only cutting $5 off your capital every month (for now, at some point the ratio will change), which means you’re on track to pay off your debt in somewhat less than 800 months (less, since at some point the capital remaining will be less, thus the interest portion will be less as well. Simple compound interest calculation, which however I cannot be arsed to look up and do at the moment :p). ~600 months sounds about right
Sadly, but not surprisingly, the CC company is probably setting your minimum payment at roughly these parameters (i.e., just about the bare amount you have to pay in interest,) hoping that you will pay the minimum, i.e., basically just the interest.
ETA: GuanoLad, I know interest rates for CC’s are usurious, but I strongly doubt even they can get away with charging $75 monthly interest on $4,000 capital…
If you think about it, your minimum payment is about 2% of your balance. That would be roughly 24% per year. You’re paying interest of 21%. Your balance is maybe being reduced by one payment per year - the other 11 payments go to pay the interest.
I have 2 cards that I’m currently paying the minimum on. I have 3 cards that I’m paying more than the minimum on (varying amounts more than the minimum, to be fair). As those get paid off, I’ll pay off the remaining ones faster. For those two that I’m just paying the minimum on, I can’t bring myself to look at that statement about how many years it would take - I know it would be a LOT, but I also know that it won’t take anywhere near that long when I manage to roll more money toward those cards.
Loads of freebies is why I usually have about four. Only one for regular use, one with a different bank just in case, and then I cycle two for miles, etc. My best grab thus far was a free Kindle that also came with a $100 gift card.
The way I see it, usually those “freebies” are only good if you otherwise avoid the real reason they want you to keep the cards. Annual fees, interest rates and sometimes even hidden costs make the “freebies” more expensive to you than they are to them (quite natural, actually, they’re in the buisness to make profits, after all).
“Usurious” is the right word - credit cards are indeed legalized usury. I don’t think you can live in the modern world without a credit card, but carrying a balance is such a bad idea if you don’t have to - it’d break my heart to calculate how much I would pay for some silly shit I bought with the card if I carried the balance for years. We use our credit cards for convenience, then transfer the balance to our low-interest line of credit and pay that off as quickly as we can.
My cards with freebies have no annual fees and I always pay them off. We ran some extensive home improvements through our Discover Card last year, paid it off, and had enough cashback to pay for most of Christmas.
As for the OP, saying how long it will take to pay back at minimum payment is excellent. It is a calculation not many owing money would be able to make, and it makes the hole you are in very clear.
We’ve had this up in canada for a couple of years. I pay them off at the end of the month but looking at the minimum payments I can see how it is very tempting to carry a balance.
I had a bill last month that was 8000 (there was a vacation and a bathroom reno on there). The minimum payment was 233. If I wasn’t as thouroughly versed in compound interest, it would have hurt (in the short term) a lot less to pay 233 than to fork out 8000.
(Of course, I had the cash set aside so it didn’t hurt that badly.)
I actually have a few cards with pretty high annual fees. But I always get back more than what I pay for the annual fee.
For instance, I pay $65 for my Marriott Premiere Visa. Each year I get a free certificate for one night in a category 1-5 Marriott hotel. This year, I used it at the Philadelphia downtown Marriott ($350/night). Last year, I used it for a hotel on the way to Outer Banks ($125/night). No brainer.
Delta SkyMiles gold AMEX charges $95/year. With it, I get one free checked bag for me and up to 7 people traveling with me. That’s $50pp. Plus we get to board before the general population so we get first dibs on overhead bins. One girl’s trip to Florida with 6 friends and I’m way ahead of the game. I also get an annual $99 companion ticket. I recently used it to book two RT tix to Salt Lake City for our trip to Park City, UT in March. Retail $335/ticket. I paid less than $500 for both. No brainer.
I agree that credit card companies charge high interest rates. But as long as this is made clear from the get-go, and they don’t change the policy on you once you’re committed to owing them money then I don’t think there are grounds to bitch.
I mean, damn the credit card companies - for providing you cash without you putting down any collateral and no strings attached - save for the high interest rates that should be made clear before you make your decision to borrow the money.
I am sick and tired of people being overjoyed to have the money made avail from a credit card, but then after chalking up some serious dept using it damn the credit card all to hell. If you don’t like the rates, don’t use the card. It should be that simple.
Here’s how it works. They require you to charge and pay off something like $300 in the first few months in order to get the free points or gift. No need to change your normal buying behavior; just use it instead of your regular card. They always waive the yearly fee for the first year IME. Once you have the stuff, cancel the card.
Yes, you actually have to spend a few minutes on the phone canceling the card, which I understand can be a big barrier for folks.