When you borrow money, whether it’s in the form of a credit card purchase or a student loan, you're responsible for paying back the initial amount you borrowed plus interest. Depending on the interest rate, this debt can add up quickly, especially if you're able to pay only the minimum amount required by the lender.
For example, let's say you have:
$3,000 in credit card debt with an interest rate of 18 percent.
You decide you don't want the temptation of a credit card any longer, so you call the bank, close the account, and cut up the credit card.
You pay the minimum required payment of $60 each month. At that rate, it will take almost eight years to pay off the original debt, and you also will have paid $2,580 in interest. That’s a total of $5,580 you will have paid on your original debt of $3,000.
Is it worth it to go into debt to buy something that might be gone, used up, or thrown away long before you pay it off using credit? It’s a better idea to pay the balance monthly.
To figure out how long it will take you to pay off your credit card or loan debt, use this online financial calculator.