Sense & Centsibility Blog
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Three reasons to pay attention to your credit card APR

Credit card billAre you clueless about your credit card interest rate? I read an article on about a poll showing half of all balance-carrying credit card users are clueless about their APRs. I wish I could say I was surprised by this; unfortunately, I have witnessed this with my own eyes as a financial counselor. In fact, many of my clients aren’t even sure where to find the APR on their statements. To be honest, at one point in my life either was I (hint: it’s typically buried on the second page that no one looks at). Once again, this information is not surprising, but is alarming and here’s why.

Your APR determines how much it costs you to use your credit card

The average APR for a credit card through a major creditor is right around 15% at this point in time. That means that if you are carrying a $3000 balance on a credit card from month to month you are paying about $37.50 in interest each month, which totals about $400. That will vary depending on how your credit card company compounds interest (read this article at for a great description of how credit card interest is calculated), but it’s a good start.

Now imagine that you are paying a minimum payment of around $60 per month (2% of your balance, which is typical). With each $60 payment around $38 is going to interest and just $22 is going towards your balance that month. At that rate if you never add another charge to your card and only pay minimum each month it will take you 22 years to pay off that $3000 and you will pay back $4162 in interest, on top of the $3000 you initially put on the card. If you have a retail card, with average interest rate of 23.45%, the payment must go up to about 2.5% of the balance (at 2% it would take 162 years to pay off!), which is $75 a month.

If you only pay the minimum and never charge another item to the card it will take you 34 years to pay off that card. And you will pay the credit card company over $10,000 for the privilege of borrowing $3000 today.

APR creep is happening

Maybe you think you know what your credit card APR is, but when was the last time you checked? The Federal Reserve has raised the benchmark on interest rates a quarter of a percentage six times since December of 2015. That means that if you started with an APR at 13.54% in 2015 it likely has risen to around 15.04%. What does that mean in terms of cost? If you paid off the same $3000 at 13.54% APR with a minimum payment it would take about 18½  years to pay off and you would pay back $2995 – that’s a difference of 2½ years and about $1200. That’s assuming the benchmark doesn’t move, but it will – it’s predicted to increase another 1.4% by the end of 2019.  Do you feel like a frog in a pot of boiling water yet? Of course not, because with small increases in temperature the frog is dead by the time the water is boiling!

You’re stealing from your future to pay for yesterday

While these numbers don’t seem huge, imagine you're the average borrower and are carrying $3000 balances on three different credit cards. If one is a retail card you will be paying close to $20,000 in interest on top of the $12,000 you borrowed, and that will take place over an average 20 years. If you took the same $12,000 you borrowed and invested into a Traditional IRA (with an average 7% return), and never contributed another dime to it after that, in 20 years you would have $39,470 in your pocket instead of giving it to the credit card company! That’s a return of over $27,000 – hello new car (or college savings, or small business, or retirement… you get the picture).

Ready to get a clue? 

If you are carrying balances on your credit cards from month-to-month you need a plan to pay them off yesterday. Grab your statements, find your APR, and use this credit card interest calculator from to figure out how much money you are throwing out the window each month. Shocked? Make your appointment with an LSS Financial Counselor today to get started on your plan to stop giving money to credit card companies, and start making yourself richer!

Call LSS at 888.577.2227 for your free financial counseling session, or click to GET STARTED ONLINE. The sooner you start, the sooner you will be debt-free!

Author Shannon Doyle is a Certified Financial Counselor with LSS Financial Counseling.