This month’s post is not about the beach, but it may help you get to your dream of owning a beach or lake house quicker.
Have you ever opened your credit card bill and said: Wow, my balance does not seem to be moving? Well, here is why.
Let’s say your Citibank credit card balance is $2000 with a 2% minimum monthly payment, and a 21% Annual Percentage Rate (APR).
To calculate your Minimum Monthly Payment: Take the $2000 balance and multiply it by your minimum monthly payment percentage due ($2000 x .02 = $40), which equates to $40.
To calculate your Monthly Percentage Rate: Take the APR and divide it by 12 (12 symbolizes the number of months in a calendar year). So, in this case, we have a 21% APR. So, divide (21/12=1.75%) to determine the minimum monthly percentage rate of your balance due each month. In this scenario, the monthly percentage rate is 1.75 of the $2000 balance.
Now, let’s calculate the Monthly Interest Payment. Take the credit card balance and multiply it by your Monthly Percentage Rate. For example, $2000 x 1.75% (.0175) equates to $35.00. So, the amount of interest being added to the credit card balance this month is $35.00.
Finally, let’s see how much the credit card balance decreases this month. So, a credit card payment of $ 40 is mailed to Citibank. Citibank takes the $40 payment and charges you $35 in interest fees and applies $5 toward your balance. As one can see, the $40 payment only reduces the original balance of $2000 to $1995. It will take you eons to just pay off $1900.00 because Citibank and all your other cards will take their cut first, and then apply the remainder toward your balance.
Looks like it might take you a very long time to purchase that dream cottage on the beach unless you stop spending money you do not have. Credit cards are great if you pay the entire balance every month, pay an extra $50 to $100 toward the principal amount or pay bi-monthly to cut interest cost—some institutions need to be informed that the extra money goes towards principal only. If not, use cash. Become the banker and start stashing those interest payments in an account for that dream beach cottage.
Seas the Day!
It’s a beach thang!
