12 Jan How The Credit Card Companies Charge
Credit card companies charge interest on the unpaid balance owed. The interest is charged every month, and, although the calculation seems simple enough, balances seem to grow at a much faster rate than what is expected.
Take a credit card at 10% per annum interest and a $39 per year annual fee. When you first get the card, you owe the $39.00. Then you use it for $1000. Now you owe $1039, plus interest figured on that amount for a total of $1047.66. If you don’t make a payment, the credit card company will add a late charge, typically .5%, so your total will be $1052.90.
If that isn’t paid after a month more interest and more late charges are added. At 10% per year, after a year, you will owe $1,212.53. And that assumes you are still eligible for the 10% interest rate. Most credit card companies raise the rates once you are late in your payments and it’s not unusual to see cards at interest of 30% or more.
Even if you make minimum payments of $50 a month, and don’t use the card any further, you will still owe $519.52 after a year. So, you borrowed $1000, paid a $39 fee for the privilege, and paid $600 (twelve payments of $50 each), and you still owe $519.52! And of course, since it’s been a year, another $39 annual fee is assessed bringing your total to $558.52.
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