Not to turn this into a finance blog or anything, but I felt like talking about credit card debt today.
In my 20s, I always heard people say “You should absolutely make sure you pay off your credit card in full every month!”. I knew that was probably the best case scenario, but I live in reality here and to me, it just wasn’t possible to pay it off. Where would I find an extra $6,000 (which is what I assume my average credit card statement balance was every month)? I told myself the best I can do is pay as much as I can and not let it get out of hand. Besides, I was doing pretty well financially with a fairly good paying job and some of my money invested in real estate, so I didn’t see any urgency in paying them off.
In the end, would it have made much of a difference anyways? I decided I’d run those numbers today.
The assumptions I’m making:
– $6,000 average statement balance (which was never paid in full)
– Interest rate of 18%
– Potential investment rate: 7%
– Period of time: 10 years
So let’s calculate this:
Interest per month: $90
Interest per year: $1,080
Interest over the 10 years: $10,800.
Wow, that’s actually a lot of wasted money. Now let’s assume I had invested whatever money I spent in interest into an investment account that paid 7%. Where would I be?
I’ve calculated it and it would have netted me $15,575. That’s a pretty crazy amount of money.
This money is also ALL interest, meaning, I actually got NOTHING for that $15,575. Maybe it was more of an emergency than I thought.
According to CNN, the average American credit card debt is $15,950.
Using those same calculations, over 15 years, Americans lose over $71,000 because of these credit cards! No wonder so many are struggling financially – they’re giving all their money to the banks.
If I had followed the advice given to me and had found a way to not spend $6,000 unnecessarily and avoid carrying a balance in the first place, I’d have $21,575 in the bank right now. That’s an expensive mistake to make.
Anyhow, I managed to pay off my credit card last year, but this really reinforces for me the fact that I should never carry a balance on my credit card again. Credit card debt is an emergency, and I think it’s time people start seeing it that way.