How The Credit Card Companies Charge

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.

Related Posts Plugin for WordPress, Blogger...
The following two tabs change content below.
Douglas Jacobs is a California bankruptcy attorney and partner in the Chico law firm of Jacobs, Anderson, Potter & Chaplin. Since 1988, Mr. Jacobs has taught Constitutional law and Debtor-Creditor/Bankruptcy law at the Cal Northern School of Law. He has served as Dean of Students since 1994. He is a frequent lecturer on the subject of consumer bankruptcy law, and has spoken at both state and national levels.
No Comments

Sorry, the comment form is closed at this time.