Stop Throwing Away Money with a High-APR Credit Card
When your new credit card came in the mail, a whole bunch of pamphlets with small print came with it. If youâ€™re like most people, you either threw them away or filed them somewhere youâ€™ll never have to think about them again. If they wanted you to actually read that stuff, theyâ€™d print it a little bigger, right? You know how to make purchases with your credit card, and that seems like the most important thing to know.
But the truth is, the terms and conditions disclosures that come with your credit card are very important. Somewhere in all that fine print is a box that tells you what the fees and interest rates are for your credit card. If you donâ€™t pay off your balance in full each month, the APRâ€”it stands for Annual Percentage Rateâ€”is going to dictate exactly how much extra youâ€™ll pay before getting your balance down to zero.
The difference between a high APR credit card and a low APR credit card can bethousands of dollars depending on how big of a balance you carry. Itâ€™s essential that you know your APR and figure out how much itâ€™s costing you.
A $20K difference
If you donâ€™t think thereâ€™s a huge difference between a credit card with a 20% APR and one with a 5% APR, read on for an eye-opening illustration of just exactly how much more that high APR card could cost you.
Say you have a balance of $5,000 that you want to pay off. You stop using your cardâ€”so, there are no new charges being madeâ€”and pay only the minimum payment each month. The interest rate is 20% (or more likely, 19.99%, as thatâ€™s the way most credit card issuers prefer to phrase their rates). It will take you about 41 years to pay off that $5,000 balance, and during that time you will pay approximately $21,169 in interest.
Now imagine that same scenario, only the APR on that credit card is 5% (or 4.99%) It will take only 13 years to pay off that balance, paying the minimum payment only, and you will pay a comparatively miniscule $1,177 in interest over those 13 years. A pretty big difference, right?
The best course of action
Of course, 13 years is still a long time, and over a thousand dollars of interest is not insignificant. The best thing to do is transfer the entire balance to a 0% APR introductory offer credit card and pay more than the minimum each month, so the entire thing is paid off quickly with no interest paid.
Whether or not you transfer that balance to a low-interest card or a zero interest card, hopefully this illustration shows you just how important it is to pay attention to the APR on your credit card. The good news is, you donâ€™t have to dig up those tiny-print pamphlets that came with your card to find out what your APR is. It is printed clearly on your statement each month.
Stop throwing away money on your high APR credit card todayâ€”browse a selection of low APR cards and find the one that could save you thousands of dollars.
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