Interest on a credit card is currently around 17%, and could infact be as much as 23% if you are using a store card.
If you buy something on a credit card (or indeed purchase with any form of debt) it’s very easy to look at how much you’re paying back each month and to ignore the total cost.
For example on a credit card balance of £5,000 the lender will normally ask you to repay circa 2% each month. Therefore on a balance of £5,000 the monthly payment would be £100.
As the balance reduces the monthly payment will also reduce.
Therefore when the balance reduces to £4,000 the lender will ask for a monthly repayment of £80.
But be aware, lenders aren’t doing this to be kind to you and help out your cashflow. They’re doing this because they make a huge amount of money by doing so.
If the lender only asks you to repay £80 this month as a minimum rather that £100 it’s very common to only pay £80 rather than £100. After all, why pay more than you need to? If you only pay £80 you then have an extra £20 in your pocket for other goodies.
But the cost of doing this is significant. Do you know how long it will take you to repay a £5,000 credit card balance with an interest rate of 17% when you always only pay the minimum monthly balance?
And do you know how much you will have repaid in total over the period?
If you don’t know the answer to the above; make sure you sign up (in the sign up box to the right) for my download “7 essential steps for savvy women to take control of their wealth”. I suspect the answer will both surprise and horrify you. It will hopefully make you think differently about how willing you are to put your spending on a credit card and only repay the minimum.
The same principle applies for loans, mortgages. Hire Purchase and indeed any form of loan. Find out how much you will repay in total, not just what you will repay each month.
Have a guess as to what you think the answers are to the above and then download the eBook. Let me know what you thought when you found the answer. How accurately had you guessed? Email me at Mary@mary-waring.co.uk to let me know. I look forward to hearing from you.