Do you know what your credit card costs you? Let’s look at the math. Take a Citibank card with a $5000.00 balance and a 14.99% interest rate. Calculated according to one of their recent card agreements, if you pay the minimum payment each month, it will take you 19 years and 10 months to pay the card off. Your payments will total $10,551.68 over that time period, or just over 2 times the amount you borrowed.
Now, let’s look at what happens if you are not always on time with your payments. If you are late twice a year, Citibank will impose their default rate, which under the same agreement we used above, was 28.99%. This is actually fairly low for a default rate, in excess of 30% is fairly common. If you make the minimum payment each month, it won’t take you much longer to pay the card off, just! 22 years and 8 months, but you will pay $17,755.83, or an extra $7000 or so for the privilege of paying late twice a year.
Think that’s a crock? Think you’ll just stop paying, save your money and settle with them for 50% on the dollar in a couple of years? Ok, let’s look at that math. After 2 missed payments, your interest rate goes to the default rate. You’ll incur late fees for at least 6 months, although it appears that Citibank’s policy is to stop imposing fees after 6 months. After 2 years, if you haven’t been sued, your balance will be $9,060.89, so your 50% on the dollar settlement will cost you $4,580.45, or about what you owe now. If you wait 3 years to try to settle, your balance will be $12,066.35 and your 50% on the dollar settlement will cost you $1,033.17 more than you owe now.
What is the lesson here? You can’t win. That’s it. Nothing else. (Well, you can win, but only if you don’t play).