Received my credit card statement the other day. I was randomly scanning it when I came across some amazing information – really! This is what it said in some smaller print in the middle of the page, obviously trying to be helpful:

If you make no additional charges and each month you pay only the minimum amount, you will pay off the Closing Balance…in about…60 years.  And you will end up paying estimated total interest charges of $27,426.94.

(The mathematicians amongst you will be able to work out my credit card balance, but I assure you I can and will pay it off this month!)

The statement did offer me a somewhat more appealing proposal. If I paid a mere $220 a month, I would pay off what I owed in about 2 years, ‘saving’ myself interest of over $26,000! Now that’s what I call a saving!

But I got to wondering: would this information be of value to anyone at all? I mean, if you had a credit card, would you only pay the minimum required balance and incur no further credit card charges… FOR 60 YEARS. I will definitely be dead by then anyway. And why would they (the bank) suggest a payment of $220 a month to pay this bill off over 2 years – again without incurring any further credit charges over that period?

So the ‘minimum payment’, which does feature prominently in the summary section of the statement, is really useless. It is also misleading and leads you into thinking:

‘Oh well, this month’s a bit tight. I’ll just pay the minimum and I’ll be OK’.

No you won’t! You are headed into usurous interest charges of over 20% pa, backdated as well and compounding rapidly.

Who cares?

Not the banks, that’s for sure. This is just an example of idiotic (ie useless, actually emotionally misleading and potentially harmful) information that is given to consumers. The ‘minimum payment due’, which is the line shown first in my payment summary – before the total amount due – emotionally leads you to think that this payment will be sufficient to get by in the short term.

IT’S NOT!!! It’s dangerous to pay the minimum. By only paying 2% of the amount, it’s costing you another 20% in interest, at a time when ordinary interest rates are around 3-7%pa or even lower in most countries.

Credit card usage is easy and convenient. But get it wrong and it is a very costly. My advice: Pay it all off, each month. If you can’t do this, don’t use the credit card in the first place. You can’t afford it. It could bankrupt you.