How are My High Interest Rates Costing Me Money?
Alright, so everyone understands they are getting robbed blind by credit card interest rates assuming they are an active user. There is no secret there; however, I think we should quickly study how impactful a lifetime of using credit cards with bad interest rates really is.
Great credit scores can get you down into the 10% APR range on your cards. Pretty bad credit, assuming you can get qualified at all, can put you all the way up to 30% range. Although we’ve seen ultra-high as much as 80% APR on high risk cards, but at that point you might as well go outside and shoot yourself in the foot because they will both feel about the same.
Let’s use a slightly worse than average rate surveyed by creditcards.com of 23.23%. Let’s say you made a single $1,000 purchase on a card with a 23.23% APR, it would take you over 6 years to pay it off if you just payed the minimum and the credit card company would collect $840 of interest during that time. However, if you had a good credit score you would pay it off two years earlier, and only be at around $200 in total interest. The difference is well over $600 and that is just one PURCHASE. ONE PURCHASE. THAT’S INSANE.
What people often forget when losing money due to their credit scores is that not only do they end up with the same product after spending more, the money they lost could have been allocated towards investments/retirement and when you add a modest 7% return on that lost money over a lifetime, the bill goes from anywhere from 100s of thousands to millions.