### Credit Cards Basics: Pay On Time

Take a look at this example to find out why it pays to make credit cards payments on time. See how much it costs when you don't pay on time:

Paul has a new credit card with a 13.99% APR and a \$500 credit limit. He spends a total of \$900 over three months. He pays off a total of \$600.

Look at these two scenarios. In both scenarios, Paul spends \$900 on his card and pays off \$600. In Scenario 1, at the end of March, he owes \$313. In Scenario 2, he owes \$416. Depending on when Paul pays, he can owe \$100 more on his credit card after just three months just by paying late!

Scenario One: Paying on Time
JanuaryFebruaryMarchApril
Ending Balance\$300\$453\$458\$313
Purchases\$300\$300\$300-
Payments-\$(150)\$(300)\$(150)
Late Fees----
Overlimit Fee----
Interest Charges-\$3.22\$4.53\$4.94
Standard 13.99% 24.99%
Scenario Two: Late Payments
JanuaryFebruaryMarchApril
Ending Balance\$300\$670\$707\$415
Purchases\$300\$300\$300-
Payments--\$(300)\$(300)
Late Fees-\$29\$29-
Overlimit Fee-\$35--
Interest Charges-\$6.34\$7.84\$7.68
Scenarios assume \$29 late fee, \$35 over-the-limit fee, average daily balance billing, and a \$500 credit limit.

What happens in Scenario 2? Paul has paid just as much money. But he missed a payment in January, his February payment arrived late, and he paid on time in March. Because of this, although he¡¯s paid just as much money, he owes \$415 ¨C \$102 more than if he¡¯d paid on time.

This happened because:
• In January he missed a payment, so he got charged a \$29 late fee.
• In February his balance was more than \$600 but his credit limit was \$500. He got charged a \$35 over-the-limit fee.
• In February his payment arrived late so he got a late fee of \$29.
• Because he missed or was late on two payments, and because he went over the limit on his account, his interest rate increased from 13.99% to 24.99%.
• Greater fees and more interest meant \$100 more debt after just three months.
Paying on time made a big different for Paul, and it can for you too.