Long gone are the days people paid with cash. Nowadays, we shop online. We buy groceries, get movie tickets, pick up takeout, and pamper ourselves with a serious dose of retail therapy by tapping our phones or smart watches at checkout. Such conveniences are all thanks to credit cards. They are absolutely marvelous, but they have also made spending money super easy. Which means, we need to know a thing or two about APR.
APR stands for Annual Percentage Rate. It is the interest rate credit card companies use to calculate how much they are going to slap on us for carrying balances forward to next month. Confused? Let’s consider this:
Emma went on a shopping spree and put $2,500 on a credit card. Got lots of compliments on her new wardrobe. She’s exhilarated! Several weeks later, she received the credit card bill. She felt dreaded opening it. That credit card charged an APR of 18.24%. The most she could pay back each month was $80.
Here’s where things get dicey. That was not her only credit card debt. She already carried $4,700 on two others, both with an APR of 22.75%. Her total monthly payment on them was $150.
Hypothetically speaking, let’s assume Emma managed to not use her credit cards anymore and she stuck to making the monthly payments. Guess how long it’d take her to pay off everything?
Answer: 48 months
In total, Emma would fork over $10,616 to the three credit card companies to cover what she owed originally ($7,200) and interests ($3,416).
Shocked?
We are living in an increasingly cashless society. Click. Swipe. Tap. Most of our purchases are on credit cards. The ease desensitizes us from having a firm grip on how much we spend, a situation suiting credit card companies just fine. They may not admit it, but the ugly truth is credit card companies make big bucks off their customers who pay hefty interests on the balances they carry.
Feeling anxious over credit card debts? Honker down. Rifle through expenses and scale back on the unnecessary. Make a workable, realistic budget and pay back as much as we can every month. In time we can and we will wipe clean our credit card debts.
Interests on debts grow without rain.
Yiddish Proverb
