There are two ways to pay for something you buy. One way is to pay immediately by giving the seller cash or a check, the other payment is to use "credit" which is usually in the form of a credit card or store credit. Credit allows the consumer to buy now and repay the debt at a later time.

Visit our cost of credit chart and calculator to see what credit card debt is really costing you.

Credit Card Debt
Would you pay $5397 for a computer that actually costs $1750? Many people do.

How is that possible? They purchase the computer using a credit card or store promoted charge card and don't pay it off in full upon the following statement received.

What normally happens? The purchaser receives the next statement and pays only the minimum due. In this case, let's say it's a new card and no other charges are on it. The minimum payment on a card at 18% interest and calculates its minimum payment by charging 2% of the outstanding balance comes to a payment of $35.

At 18% interest on the balance of $1750, and a minimum payment of $35 a month, how many months will it take to payoff the computer, assuming nothing else is charged on the account? (Answer: 264 months, or 22 years!) How much in interest will have been paid in addition to the original $1750 purchase over all of those months? (Answer: $3647) This brings the total cost of the computer purchase to $5397.

If you planned far enough in advance and saved the $35 a month, $1750 would have been saved after just 50 months. By saving the original purchase amount and paying for the computer in cash, you'd never have to pay a dollar more for the remaining 214 months. However, if you're prepared to pay $35 a month, why not continue to put that money in savings for future cash purchases and not send it to a bank as finance charges?

In reality, the balance never really gets paid off. Why? Because the card is continually used for other purchases and the debt cycle continues on indefinitely. So instead of paying only for the items that were originally purchased, the majority of a person's purchasing power and financial resources are going to the financing companies. In this example, $3647 paid in interest could be used directly for other purposes, but only if the original items were paid with cash!

The truth about credit…over time, you can always, without fail, do more with cash than you ever can with credit!