Sometimes the best stumps for reform come from the mouths of jesters. Consider this bit from Maria Bamford:
I really think that before giving me a credit card they really should have given me a math test. Like a series of story problems:
- Question Number One: If Maria works as a comedian for $100 a week but spends $20 a day on hair scrunchies, how many years will it take for her to pay off a Taco Bell Gordita she bought in 1992?
- Question Number Two: If Maria’s boyfriend is in a folk band but he only smokes pot every other day, what percentage of the rent will he be able to contribute?
I thought 50%, but the answer is zero. That’s good to know. That’s going to be on the test.
But in all seriousness, there are some truths that consumers should be able to wrap their heads around before being granted access to revolving credit. If you’re new to credit, I strongly recommend you be able to work out each of the following math equations:
Minimum Payment Costs
As penny pinching scrooges, we love to pay the minimum. We want to pay the minimum amount for our used cars, our utility bills, our phone and Internet service. Heck, we’ll even forgo one of our slices of cheese on the McDonald’s double cheeseburger before we pay a single cent over the minimum. Bottom line: we don’t like to pay more than we have to.
But when it comes to your credit card balance, you shouldn’t pay the bare minimum just because you can get away with it. Here’s why:
Let’s say you have $2,000 in credit card debt.Your minimum payment (typically 2%) is $40 a month and your APR is 18%. Guess how long it’ll take you to pay that off? The answer: just over 24 years. Not only that, you’ll pay $4,396.57 in interest. That’s 2 grand and nearly a quarter of a century down the drain.
Now, taking Ms. Bamford’s example, let’s say she abstained from hair scrunchies for one day a month and applied that extra $20 to her credit card balance. The debt is gone in just under 4 years and she pays only$793.44 in interest. That’s no typo.
The formula for this doozy is too complicated to keep in your head, but luckily you don’t have to. Just visit the credit card minimum payment cost calculator and hit CTRL – D.
Read the rest of this post at Master Your Card.
Photo by d3_dan
