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The true cost of a credit card swipe

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Credit cards are powerful tools, but the interest charges can be a drain on income and chip away at your savings. Understanding how interest adds up can help you choose a repayment plan that makes the most sense for your needs.

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$3,000

Say you have a balance of $3,000, with a 14% interest rate. You have some choices in how you pay that down. Here’s how those choices could play out.

Monthly payment:

1)     Minimum payments of $65*

2)     $100

3)     $200


Payoff time:

1)     More than 17 years

2)     3 years and 2 months

3)     1 year and 5 months

 

Total interest:

1)     $3,000

2)     $714

3)     $317

Total cost:

1)     $6,000

2)     $3,714

3)     $3,317

*1% of balance plus interest

The bottom line

Credit cards offer flexibility in repayment terms—but the longer you take to pay, the more it will cost. It’s up to you to determine which schedule works best for your needs and consider if using a debit card for everyday purchases might make sense.

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The material provided on this website is for informational use only and is not intended for financial or investment advice. Bank of America and/or its affiliates, and Khan Academy, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment options.

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