The Cost of Buying on Credit

It’s no secret that credit cards are super handy — they help us snag everything from the latest gadgets to a quick bite at a drive-thru. But while using credit cards can make shopping easy, it’s also important to understand the real costs that can come with it.

Cash is King

The ideal way to make a purchase is to save up the cash you need and pay for it outright. This way, you avoid any extra fees or interest charges and only pay for the item itself.

Of course, life doesn’t always allow us to have cash on hand. If you do need to use a credit card, try to pay off the balance in full each month. This way you won’t incur any interest charges, and you’ll avoid the financial strain that comes with carrying a balance.

The Impact of Interest

When you accrue credit card debt and don’t promptly pay it off, you have to pay interest on the money you’ve borrowed.

Let’s say you buy an $800 laptop with a credit card that has an 18% interest rate. If you only make the minimum monthly payment of $16, it’ll take you a whopping 94 months to pay off that laptop. Even more surprising? You’ll end up paying over $689 in interest over the life of the loan, making the total cost of your $800 laptop nearly $1,500.

Imagine what could happen with bigger purchases or if you’re carrying a larger balance. The interest can add up fast!

Watch Out for Fees

Interest isn’t the only cost to watch out for. Some credit cards also have annual fees and late payment fees.

Late payments can lead to fees usually around $15 to $35, and they might also trigger a higher interest rate. Going over your credit limit can also lead to additional fees.

Cash advances on credit cards can be tempting, but they often come with high fees and interest rates. It’s usually best to avoid them unless absolutely necessary.

The Best Credit Strategy

Credit cards can be a great financial tool, but be mindful of the potential costs. The best strategy? Pay off your balance every month to avoid interest and fees. If you can’t do that make sure you understand how quickly credit card debt can grow.

By staying informed and making smart choices, you can enjoy the convenience of credit cards without the financial stress.

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