spent. Often, they can’t pay off the entire bill. But that’s okay, right? They can wait to pay the bill next month when
they have more money in the bank. We already know the problem with that—a damaged credit score and hefty fees! Interest is money that is paid to a lending organization at a certain rate based on the amount borrowed. When you get a credit card, an annual percentage rate will be applied to any late payments. These interest rates can range
anywhere from 7% to 25% or more! Imagine that you build up a $1000 credit card bill over a year’s time, and you have a 20% annual percentage rate. You’ll owe $1200. That’s $200 in interest because you didn’t pay on time— $200 you could have had in your bank account for a future purchase. If you’re not careful, credit card debt can accumulate quickly.
Personal Finance Stories Kelly was able to get a credit card with a credit limit of $500 after she got her first job at the age of 17. Over the next few years, due to the fact that she was responsible with her spending and paid her bills on time, the credit card company rewarded her with credit increases. Soon, her credit limit was $2,000, and her credit score was 799. However, after starting college, she had to start using her credit card for school supplies, books and meals. She also worked less, due to her full-time load of classes and before she knew it, she’d maxed out her credit card. To make matters worse, she applied for a few more credit cards and quickly maxed those out as well. She now owes about $10,000, and her monthly payments are around $350 per month, which she can’t afford. Because she applied for so many cards, and has made a few late payments, her credit score has dropped to 643. After speaking to her parents about the situation, they agreed to loan her the money to pay off her cards, but she’d have to lock up her cards and pay them back. On top of that, she’s now using a credit monitoring app on her phone that gives her tips on how to improve her credit. And, once her parents paid the cards off, her credit score jumped back up to 725.
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