Credit card companies shouldn’t be thought of as benevolent grandparents lending you money whenever you feel like going out to dinner or buying a new coat.
They exist to make money. How do they do that? Well, a few ways, but most notably by charging you late fees if you don’t pay on time and by charging interest on your purchases if you don’t pay off the entire balance each month.
And we can’t forget another huge source of revenue for the credit card companies: interchange fees, as I mentioned earlier—the one that the merchants pay to the credit card company every time you swipe your card.
The average interest rate on credit cards is 14.92 percent.
Is that high? Not as high as it could be.
The higher your interest rate is, the more money it’ll cost you if you leave a balance on the card. So if you charge $300 on your credit card, and you don’t pay that full amount back by the bill’s due date, interest will accrue on the balance.
That $300 will turn into $350, $400…There’s no limit as to how much the balance can grow.
The longer it takes you to pay back the balance, the more the interest will accrue.
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