FORMER GOLDMAN BANKER: You Should Know The Ugly Math Behind Your Credit Card Debt

[FarCenter]

On the debt side of things, how much does your credit card company earn if you carry just an average of a $5,000 credit card balance, paying, say, 22% annual interest rate (compounding monthly) for the next 10 years?

In your mind you owe a balance of only $5,000, which is not a huge amount, especially for someone gainfully employed. After all, $5,000 is just a quick Disney trip, or a moderately priced ski-trip, or that week in Hawaii. You think to yourself, “how bad could it be?”

The answer, including the cost of monthly compounding, is $44,235, or about 9 times what it appears to cost you at face value.

I hate to be the Scrooge, but the power of compound interest transformed that moderate credit card balance of $5,000 into an extraordinarily expensive purchase.

Read more: http://www.businessinsider.com/compound-interest-and-credit-card-debt-2013-2

[msongs]

1. meanwhile those same card issuing banks pay 0.005% on your savings. try compounding that! nt

[Octafish]

2. Would those be the same banks the taxpayers bailed out with TRILLIONS of free Fed money.

There's nothing like hypocrisy to show them for the banksters they are.

[apocalypsehow]

5. We definitely agree on this, Octa.

[nadinbrzezinski]

3. Why we go out of our way NOT to owe

Period. If I don't have the money...it is not put on plastic...period.

Ok, I admit, I will carry a hundred bucks once every five years. (Like a plumbing bill) It took two months to pay off, completely.

[Ron Obvious]

4. $5,000 is just a quick Disney trip?

"$5,000 is just a quick Disney trip, or a moderately priced ski-trip..."

I guess I haven't been to the Magic Kingdom in a while, but that sounds like an expensive vacation to me.

[FarCenter]

7. A 5 day ticket is about 250 to 300, depending on age

Add in hotel rooms, airfare, baggage fees, tips, food, parking, rental car, gas, overpriced and trashy souvenirs and a family of four can easily get up to $5000.

[defacto7]

6. Do people really not know this?

Credit cards are worse than a gambling addiction for some people I guess. They have some plastic that can get them stuff and they can't resist having that stuff. There are a lot of others where the tendency to use them is more subtle and it slowly catches up with them... but it's no different than a gambling addiction for them either. That's the only way I can figure out how anyone would use a credit card and not pay it off immediately; it's the biggest waste of money there is. The interest you pay is pretty close to the interest people would pay the mob.

It's hard for me to believe people haven't figured that out. At least if you go to Reno and spend a hundred bucks on the table it's a few moments of entertainment... as long as you didn't borrow the cash from your credit card.