Tilted Forum Project Discussion Community - View Single Post - Do you get charged interest if you only pay the minimum each month a on credit card?

Yakk · 06-08-2004, 06:03 PM

You are charged interest if you only pay the minimum.

For normal purchases, there is a "grace period" in which you are charged no interest. This is typically until the next bill. I am unsure if the "grace period" exists if you have an unpaid balance on your card.

However, any unpaid balance on your card accumulates at the interest rate your card has (typically 10% to 20% / year). This seems small. It grows exponentially, and exponential growth gets out of hand if you let it run away for any length of time.

Suppose the min payment was 5%/year (or .4%/month) of the balance, and the interest rate was 15% (or 1.17%/month). Then, the amount owed would increase by a whole 0.77%/month.

This works out to about 10%/year increase in your debt.

After 10 years, your debt and your payments have increased by a factor of 2.5.

After 30 years, they have increases 16-fold.

And that is assuming you aren't charging more and more on your card as your minimium monthly payments go up and up.

So, in the short term, it won't hurt all that bad. But it isn't sustainable.

06-08-2004, 06:03 PM	#3 (permalink)
Yakk Wehret Den Anfängen! Location: Ontario, Canada	You are charged interest if you only pay the minimum. For normal purchases, there is a "grace period" in which you are charged no interest. This is typically until the next bill. I am unsure if the "grace period" exists if you have an unpaid balance on your card. However, any unpaid balance on your card accumulates at the interest rate your card has (typically 10% to 20% / year). This seems small. It grows exponentially, and exponential growth gets out of hand if you let it run away for any length of time. Suppose the min payment was 5%/year (or .4%/month) of the balance, and the interest rate was 15% (or 1.17%/month). Then, the amount owed would increase by a whole 0.77%/month. This works out to about 10%/year increase in your debt. After 10 years, your debt and your payments have increased by a factor of 2.5. After 30 years, they have increases 16-fold. And that is assuming you aren't charging more and more on your card as your minimium monthly payments go up and up. So, in the short term, it won't hurt all that bad. But it isn't sustainable. __________________ Last edited by JHVH : 10-29-4004 BC at 09:00 PM. Reason: Time for a rest.