Penny Wise: Credit cards can get you further in debt

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By Ty-Eshia Johnson

Earning interest can be the reward for saving money, and paying interest can be the cost of borrowing money, business Professor N. Mai Lai Eng said.

When an individual doesn’t pay a credit card in full each month, the cardholder is charged interest on the remaining balance, she said. That’s what the credit card company earns, and it adds to what the cardholder owes.

Eng said if someone pays $500 for tuition with a credit card and repays only $100 each month, the credit card company will charge them interest on the remaining balance.

“It could end up costing you more,” Eng said. “That $500 tuition can end up costing you more if you take a long time to pay that balance off.”

Eng said interest increases every bill cycle, and a credit company will re-evaluate the interest based on the remaining balance after someone has made a payment.

“You’re paying interest on your interest,” she said. “It will end up making you spend more money than you would’ve if you had paid it off.”

She said one major problem with some students is credit card debt because of unpaid balances.

She said people should not use credit cards unless they really need to. Instead, use cash for everything, including small purchases.

“You should be very careful with how you use your credit card,” she said. “That’s the best thing that I can say for students.”

To earn interest, she said people should think of how to make their money work for them by putting their money in accounts that generate the most interest.

“You need to learn how to make your money work for you versus you work for your money,” Eng said.

Eng said it’s hard to find a place that’s going to pay a good rate of interest because of financial problems in the economy.

She said in 1978, people could find a savings account with a $500 deposit and earn 5.25 percent interest annually, but today they’re lucky to find an account paying 0.05 percent annually.

It is hard to save a small amount of money because it will take a while to generate a noticeable amount of interest unless people continue to deposit money into the account.

Building additional principle in an account will generate a greater amount of interest.

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