Financial Fact Friday

Somehow You Ended Up Owing More Than Your Credit Limit: The Credit Card Sneak Attack

Have you ever maxed out your credit card and then found out you owe more than your limit? Yep, that can happen. That’s compound interest working against you. When you buy stuff with your credit card and don’t pay it all off when the bill comes, the credit card company starts charging you interest, not just on what you spent, but also on the interest that’s already piled up from before.

So let’s say you got a credit card with a $1,000 limit. You go out and spend all $1,000. If you can’t pay it back all at once, they’ll slap interest on your bill. If you just pay the minimum, that interest keeps adding up, making your debt bigger every month, even if you ain’t using your card anymore. That’s how you end up owing $1,200 or even $1,500 on a $1,000 limit. It’s like a bad joke, right?

Closing your account won’t stop the interest from stacking up either. That’s because the meter on interest keeps running until you’ve paid off the whole debt. It’s a tough loop to get out of.

Here’s the thing: credit cards are handy, but they can trap you quick if you’re not careful. The best move is to pay off the whole bill each month. If you can’t, try to pay more than the minimum. That way, you keep that compound interest monster in check and don’t let your debt get out of control. Don’t let them keep digging your pocket every month. Pay off that plastic money as soon as you can!