17 March 2006

Never pay minimum payment

Every time your credit card statement arrives, there is a little box called "minimum payment due". If you ever wondered whether this is a good idea, let's do some maths. (Or just Math if you are American)

Credit Card Balance: $1,000.00
Minimum Payment Due: $20.00
Interest rate: $17.9% (Many cards have interest rates much higher than this)

How long do you think it would take to pay of this at the minimum payment rate?
7 years and 9 months.
Total repayments would be $1,850 on a $1,000 debt. Also, there are extra charges and once you start paying off a balance all new credit card purchases are charged interest from day one.
Always pay off credit card balances by the due date. Keep you Credit Card receipts as you make each purchase and either record them in Quicken or Excel or somehow keep a total. Then you should not get a surprise when the statement arrives.

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