Can someone explain credit cards to me?

Question

If interest is 20% let's say (I know that's not the best rate, but just for an easy #).
If I charge 10,000$, and I only have to pay $100/ month minimum (let's just say I know it might be more). How do I determine how much of that 100$ goes to the principal balance? Is like $99 of it going to interest ?

If I paid just the minimum, I know it is bad but approximately how long would it take to pay off? 10 years?


I'm just confused about what the 20% refers to. Is that yearly, but I have to pay monthly, so.........pls explain (btw I have a college degree & I'm not dumb! but they never teach you these things in college LOL)

i know i've never had a credit card up till now, but i can hardly resist a neimanmarcus.com card!!

Answer 1

20% APR means 20% is your annual percentage rate. However, with most credit cards interest accrues daily. So, if you have a 20% interest rate you are charged 0.0548% every day. In the long run you end up paying more than 20% APR because they charge you interest on top of the interest they have all ready charged you. I can tell you right now that if you have an interest rate of 20% and you barrow $10,000 your min payment will be a lot more than $100 it will be more like $200-$400. If you were to barrow $10,000 at an interest rate of 20% it would take you nine years to pay the debt back if you were paying $200 a month. You would end paying the credit card company back $21,800 for the $10,000 you borrowed.

I have worked for 2 different credit card companies and this is an example I would use to explain the concept of payment versus interest: Let's say you take out a $300 cash advance and your interest rate is 19.8%. If you only pay the min of $10 it will take you 40 months to pay it off. However, if you pay $40 a month it will only 8 months to pay that debt back.

Answer 2

Explain Credit Cards

Answer 3

1) Credit cards are poison. Stay away from them.

2) Assuming that you are already suffering from the self-inflicted wound of usurous debt, it's better to understand what's happening.

The interest rate is how much the credit card company (bank) is charging you for the use of their money. The 20% is usually charged monthly, so that you are paying interest on any interest that you did not pay off last month. This is called compound interest. In a savings account or CD it will help you achieve your financial goals. In a credit card, it leads to the black hole of debt.

So it might seem that with $10,000 @ 20% you would owe 12,000 minus the monthly payments of 100.00, (12,000-1200 = 10,600 ) but the interest gains interest as well. (someone else may have a program to give you more precise figures)

Do your future a favor. Don't fall for the immediate gratification.
Long after you have forgotten what it was that you did or bought with the money, the debt will be there, haunting your future plans for years. Nothing is worth that.

Good Luck!

;-)

Answer 4

Typically the amount of time to pay off a large balance with just minimum payments is roughly 20 years.

Personally I love credit cards. I have spent thousands of dollars with my credit card and never have paid a penny in interest. The trick is to use the card for things that you can pay cash for. Many cards give cash back or some other reward.

The % rate for loans is the APR (Annual Percentage Rate). Generally interest is accrued daily and charged to the card monthly, this is known as the finance charge.

If you are going to use the card and carry a balance pay as much off as possible. If you have other debt compare the interest rates. Pay the highest interest rate debt off first. 4-6% would be a great rate but is generally impossible to find on a credit card. With good credit you can typically find a card between 6-10% Also beware of store cards like Home Depot, etc. They usually have interest rates above 20%.

Hope that helps

Answer 5

What happens is, the 20% is an annual rate.

Take that 20% and divide it monthly.
Therfor, you pay about 1.667 % interest on a month balance.

So if you have spent 1000 in September. Your bill in Oct will be 1016.68 roughly. If you dont pay anything in October than you pay 1.667% on 1016.68 which takes the balance to 1033.58

If this continues and you dont pay anything in one year, you will owe the credit card company 1232.25$ roughly. So in one year, you paid 232.25$ for nothing. Not to mention, if you use your credit card for cash advances, you may be fined a service fee. And there is also an annual service fee normally about 59.95$

And this continues.

A credit card with 20% is a HIGH Interest paying credit card and you should avoid using it. It possible, try to get a card with 4-6%.

I would advise not using it very often. Credit cards can be good, but also bad if used improperly.

Answer 6

MAYBE someone COULD explain credit cards to you but wouldn't it be easier to just point you to some text to read? WHY would you want ME to write it all up when there's a gazillion places where you can learn about credit cardsu? i get it, you are just messing about.
Ok then I'll just tell you that credit cards are EVIL and about 50 milion people in this countyr share my views on it, so don't do it, if you are offered one, cut it up


RE:
Can someone explain credit cards to me?

Answer 7

MAYBE someone COULD explain credit cards to you but wouldn't it be easier to just point you to some text to read? WHY would you want ME to write it all up when there's a gazillion places where you can learn about credit cardsu? i get it, you are just messing about.
Ok then I'll just tell you that credit cards are EVIL and about 50 milion people in this countyr share my views on it, so don't do it, if you are offered one, cut it up

Answer 8

In the example given, the interest is $166.66 per month, so not only does no part of your payment go to principal, but the balance owed increases. But by current regulations, you would have a minimum payment of at least the amount of the interest, plus enough on the principal to pay the debt off sometime. The bottom line is this: ALWAYS pay off credit cards IN FULL EVERY MONTH. If you don't, the interest charges will eat you alive.

Answer 9

plain and simple they suck if you get a credit card be sure to be mature with it people think a 20 thousand dollar limit is awesome and they go spend it all and the intrest rate kills them instead of paying 20 thousand back they will be paying 40 thousand back plus there are plenty of credit cards out there for free with low intrest rates so shop around

Answer 10

the quoted int rate is usually an apr (annual % rate). the % that is paid to interest is always more in the beginning. (ex. 1st month 5% ($5)of your paymnet goes to the principle/ 95 % ($95)goes to the interest. the idea being that whover lends you money wants its back asap. the further along the payment schedule goes, the less you pay towards interest and that goes to the principle.