For many of us, the holiday season and shopping go hand-in-hand; it can be tough not to pounce on those big deals when you see them. But if you use a credit card to pay, remember you’re borrowing money you’ll have to pay back. What’s more, if you’re counting on making only your card’s minimum payment, you could end up paying much more in interest than you’d save on the deal.
Say you charge $1,500 for the latest electronic gadgets on a credit card with a 19 percent interest rate. If you repay only the minimum amount each month, and your minimum is 4 percent of the outstanding balance (the lowest amount permitted by some issuers), your first payment will be $60.
Question is: If you charge nothing else on that card and continue to pay the minimum each month, how many months will you pay that $60 before you pay off the balance?
It would take you eight years. That’s 106 payments — and you will have paid more than $889 in interest. That means those gadgets would cost you at least $2,389 in the long term.
Not such a deal after all… that is, unless you’re looking for a raw one.
So, before you’re charging off to the big holiday sale, learn more about paying down credit card debt and use this credit card payment calculator to plan your purchases. You can also watch this video about making credit card payments: