-> Credit Cards and Compound Interest
- How Compound Interest Can Work Against You
The use of credit cards would be an example
of how someone can easily get into financial trouble. If the balance
of your credit card is paid off completely by the due
date each month, there is no problem,
because there is no interest charged.
If you only make a partial payment (such as
the minimum payment due), the credit card company goes back
to the purchase date to start charging you interest. Credit card
interest rates are very high, so the balance owing can increase
quickly. If you fall behind in your
monthly payments, you will be paying interest
on your interest.
Once you get to this
point, you are in serious financial difficulty, and you
should take steps to correct the situation
immediately. If you don't act quickly, your
situation just gets worse and worse. Some
- immediately stop spending on
- stop using credit cards
- if the credit card debt cannot be
paid off soon, get a bank loan (if possible) at a lower
interest rate, and pay it off as fast as possible.
Sometimes credit card
companies will offer clients the opportunity to skip a
monthly payment. However, they will continue to
charge you high interest rates during this time. Do
not skip a payment.
Use our Loan
Calculator to see how much faster you can pay
off your credit card debt by increasing your monthly payment.
For information on what to consider when
deciding which credit card is right for you, see the Federal Reserve Board
information on Credit
Card Agreements and Surveys.
Pay off the balance of your credit card each and every
month. If you cannot do this, you are in financial
difficulty, because you cannot afford what you are
buying, and you are paying high interest rates on your
Revised: July 10, 2020