Why Is My $20 Bill Only Worth $5 Bucks?

Credit Card Management

Keep this in mind next time you're tempted to "put the pizza on plastic".The following information is based on an interest rate of 16.99% to 18.99%:

If your balance is $1000.00 and your minimum required payment is $20.00, then $15.00 of the payment goes to interest and only a small portion pays down the principal. If during the next month you charge $15.00 or $20.00 on that card the same thing happens again.Here's a common scenario for many credit card users...

With a $1000.00 balance on your card and a $20.00 minimum payment due ($15.00 will be for interest. Only $5.00 will be for the principal to actually pay down the balance. Your new balance is $995.00.Yep! You paid $20.00, but it was only worth $5.00

By only paying the minimum due, you'll not be able to get off this merry-go-round for years!! You must work hard to get the balance down and here are just a few ideas:

Double the payment. This way your $40 will count for $25 on the principal rather than only $10 if done separately.
Avoid using the credit cards and thereby raising the balance.
Use cash for those little expenses that REALLY will multiply when charged to your credit card.
Pay the bill on time! One of my credit cards charges a $29.00 late fee. Yikes!
Watch that credit limit. Some cards charge a fee if you go over you credit limit--mine charges $29.00 for that privilege!
Learn to be more frugal! Wait a little longer to buy new items, another week on the next haircut, bring your lunch from home, and so on.

Some reasons to avoid credit card debt:

It robs you of your time and money because of the effort needed to get it paid back.
It robs you of your peace of mind because it's nagging at you each month
Sadly, it's much more fun charging it up than paying down the balance.

About The Author: Leslie Sausage lives with her husband in rural Texas. She is the mom of four grown children, a freelance writer and an elementary school teacher! For creative, practical and fun ideas please visit her web site at http://www.heart4home.net

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By 01/17/2006

Nice article! Am showing it to daughter.

By 01/16/2006

A year later, I am still paying on my charge card and don't even remember what it is that I bought and am still paying for! This year, I decided to incur no new credit card debt and to work at paying off my existing balances. I am taking the advice from a post on Thriftyfun and using gift cards that I purchase for myself at my favorite stores, they are quick to use like a charge card but I won't be paying any interest to a charge card company; hopefully I am on my way to being charge card free!