Credit cards are handy financial tools. They can be used nearly everywhere, so we don’t need to carry large amounts of cash. They also allow us to buy things today and pay for them over time. That’s okay, as long as you remember that you’ll have to pay back what you borrowed with interest added on.
Some choose to only make the minimum payment. What they forget is that interest will continue to accumulate on the portion they haven’t paid. The next month, they’ll have to pay interest on the balance and on the additional interest. It adds up quickly, especially if you’re using one of a store-issued credit card that has interest rates as high as 28 percent.
Why is that a problem? If your balance is large enough, and the interest rate is high enough, paying only the minimum each month means it may take you 20 years or more to completely pay back what you owe. In other words, you may still be paying for that new outfit or TV long after you’ve thrown it away.
There are two ways to protect yourself. First, use a credit card with a lower rate of interest, such as the Visa Platinum® card from Indiana Members Credit Union. Not only does it have a low interest rate, there’s no annual membership fee. The second way is simple: always pay more than the minimum payment. If you can, pay at least two or three times the minimum payment amount. Yes, it may be a challenge to make a larger payment each month, but in the long run, you’ll save a lot more money.