How Credit Card Debt Adds Up

You'd be shocked at how much money you lose

Jul 2, 2012 | WRITTEN BY CHRIS RUSSELL

It's no secret that credit card debt is especially notorious.

First off, your spending gets away from you pretty quickly. So before you know it, you owe a few thousand. Then if someone can't or doesn't pay off the balance at the end of the month (and CardTrak reports that 60% of people don't), the fees and interest rates start to kick in. Don't get us started on the collector calls that will soon follow, or the stress it all brings into your life.

For now, let's stick to those interest rates. When you carry credit card debt month to month, you get charged interest according to the size of your balance. It's not uncommon for a percentage rate to climb into the 30s, but for this example, we won't even go there.

Let's say you have five credit cards with the following balances and interest rates:

  • • $2,000 at 11%
  • • $3,000 at 13%
  • • $3,500 at 17%
  • • $4,000 at 22%
  • • $5,500 at 29%

That's $18,000 total owed on plastic. Doesn't sound horrible, right? But when you break the numbers down a little more, you'll discover that those balances are costing you $306 a month in interest charges! You don't get anything for that extra money. Mastercard, Visa and all the others simply charge you because they can—as if to say, "What are you going to do about it?"

If a guy walked into your house and said, "Start paying me $306 every month because I said so," would you do it? Of course not! So how is sending that money to the credit cards any different?

On top of that, paying on that credit card debt costs you time that could be spent growing your money. If you were to invest that $306 in a growth stock mutual fund over 35 years, it would be worth $1,967,873! If you make the minimum payment on all the cards based on 5% of each balance, it will take you almost 12 years (and $9,700 in total interest) to pay it all off.

Make the percentages work for you instead of against you. Start using the debt snowball to get out of credit card debt (and every other kind of debt, for that matter). Your future wealthy self will thank you for it later.

Reader Comments (20)

OUCH....YOU JUST DONT REALIZE UNTIL ITS BROKEN DOWN LIKE THAT....DEBT SNOWBALL FOR ME....dkchandler
Member at 11:09 PM, January 04 2012
Trust me. This is the truth. We are finally free of those, and never again. Credit cards can ruin you if you don't watch it.
Member at 6:03 AM, January 05 2012
Although we finally "got" this concept late in life, I am so happy to be free of those snakes!
Member at 7:22 AM, January 05 2012
I'm so glad I got rid of them. :D
Member at 12:45 PM, January 05 2012
The Debt Snowball has turned our life around and put our family in the right direction! Thank you Dave Ramsey! !!!
Member at 8:08 AM, January 07 2012
No more credit cards for us either!!
Member at 6:29 PM, July 02 2012
Debt snowballing for the last three years has taught us that yes! you can in fact live your life without these nasty credit cards! God bless you Dave & staff!
Member at 6:52 AM, July 03 2012
How true. At it's worst in 2008 my CC payments were over $1000 a month and over $600 was going to interest. That was the point I knew things had to change. A few months later I discovered The Total Money Makeover by Dave Ramsey and now my life is changing for the better as the debt disappears.
Member at 10:41 AM, July 03 2012
This is so true!
Member at 2:13 PM, July 03 2012
It took a year, but finally paid off the last credit card last month!! So happy that DH and I are rid of them!!
Member at 9:00 PM, July 04 2012
Credit Cards Stink!, Stay away from them!
Member at 12:45 AM, July 07 2012
Credit Cards Stink!, Stay away from them!
Member at 12:45 AM, July 07 2012
Credit Cards Stink!, Stay away from them!
Member at 12:45 AM, July 07 2012
Credit Cards Stink!, Stay away from them!
Member at 12:45 AM, July 07 2012
Oh my Lord!!! Ain't it the truth? lol i need to get on the ball with my debt snow ball!!!
Member at 1:13 AM, July 08 2012
so true paid off 30,000 in cc took 5 years have been without them for 6 years...dont miss them at all excpet on occasion for impulse purchases...which when you pay cash sometimes prevents the purchase!!! dont need em..came into this world without them and hopefully will leave without them!
Member at 2:23 PM, July 09 2012
When asked about applying for a credit card I say "No thank you. I only buy things if I can pay for them."
Member at 10:31 PM, July 09 2012
Started FPU last September, already saved $110,000 interest with home refi, changed a 30 for a 15, and paid off $15,000 in plastic cancer debt!!! Thanks Dave
Member at 6:11 AM, July 12 2012
Want to cancel all my credit cards, especially the one that charges $48 a year and $7 a month (the same card). But I've heard cancelling a card has a negative impact on your credit score. Should I just let them remain dormant?
Member at 7:59 PM, July 12 2012
@MarineMom, your score will go down, but if you've sworn off borrowing, credit score shouldn't be that important to you. Buying a house can be manually underwritten and avoiding PMI is a good idea (20% down). A good history of on time rent/utility payments should be enough for the bank. Close the cards, give it a year for your score to become non-existent. then buy house if that's what you were planning.
Member at 9:57 AM, April 08 2013

Want to join the conversation? Get started here.

What's inside of
Dave Ramsey's
MyTotalMoneyMakeover?

My Total Money Makeover is a subscription site helping people discover financial peace by walking them through Dave Ramsey's baby step process for dumping debt and building wealth.
Learn More

Membership Includes: