Credit Card Interest
There are legal but financially significant differences between the connotations of what a credit company advertises (low rates: 9.7%) and the actual facts of the matter. One would think that “low rates” means exactly that. In fact, what it means is “a smaller amount of usury than some other credit companies.” You may recall that the Bible warns against charging excessive interest rates to people who borrow money and calls this practice “usury.”
The result of the facts of credit card interest rates is that you are being set up to pay two or three times the price of whatever you bought across the length of time it takes for you to pay off the card. The clothes you bought will be rags before they are paid off if you follow the credit card’s minimum payment plan. In fact, if you pay just the minimum payment your $100 pair of pants could end up costing you $300 in principal and interest and still not be paid off for years after you donated them to charity.
Fortunately, adding even a small amount of money to the minimum payment can make a huge difference in how long it takes to pay off a card as well as the amount of interest you pay in the long run. Even ten dollars extra can potentially cut the amount of interest you would pay in half.
Of course the ideal way of handling credit cards is to pay them off each month. If you find credit cards that carry rewards (usually a certain percentage of your purchases as cash back) and you pay those cards off each month, then the card company will be paying you to use their card instead of you paying them two to three times the value of your merchandise.
Naturally, if all credit card holders paid off their balances each month, the credit companies would have to change their policies because they would be losing an enormous source of profit. Certainly they would not be offering cash back on a percentage of purchase.
There seems to be enough people, however, who have a hard time looking past credit card rhetoric into the financial truth of the matter that those who are wise to the practices of credit companies can use this rhetoric to their advantage. When you get the card, pay it off each month, collect your rewards, then you have the convenience of instant credit without the negative side effects of excessive interest.