Credit Cards Basics: Pay On Time

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Credit Cards Basics: Pay On Time

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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
Ending Balance$300$453$458$313
Late Fees----
Overlimit Fee----
Interest Charges-$3.22$4.53$4.94
Standard 13.99%
Penalty 24.99%
Scenario Two: Late Payments
Ending Balance$300$670$707$415
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 hes paid just as much money, he owes $415 C $102 more than if hed 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.


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