Credit Card Interest – One Key Factor When Choosing a Card
One of the biggest considerations you should pay attention to when choosing among the best credit card deals is the interest rate. The credit card interest charged on your account balance will determine how much money you are going to throw away on interest charges and how long you are going to pay for it.
One important thing to understand about credit card interest is that it is compounded. This means that you are paying interest on interest. The 15% interest rate your credit card provider is offering, is not the whole picture. When you are not paying your full credit card balance or you are only paying the required minimum, your 15% credit card interest rate will turn out to be substantially larger in the end.
Take for example, your credit card interest rate is at 15% per year and you are paying $30 per month, how long do you think it will take you to pay off an account balance of $1000? Believe it or not, with compounded interest, it will take you 44 payments within a period of 3.67 years to pay it off! That is a total of $302 in interest. That’s almost a third of your original balance.
Now, let us take the exact same facts, but with 18% annual interest rate this time. In this case, it’ll take 47 payments within a period of 3.917 years for $397 total interest paid. The difference is $95. That may not sound like much, but if your credit card balance is around $10000, that higher rate will cost you almost $1000 extra in interest.
This just goes to show that credit card interest will define your credit card’s value for money. Even a small difference in credit card interest will make a big difference in its monetized form. You can stop paying exorbitant interest rates unnecessarily by choosing lower interest rates and paying off your account balance as fast as you can. So, choose wisely!