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    pastor1189's Avatar
    pastor1189 Posts: 1,538, Reputation: 3
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    #1

    Jul 6, 2017, 04:55 AM
    Credit Card
    Church member owes $2,500 on his bank of american credit card.
    At 7.99 APR

    Of his monthly payment of $50.00, $17.00 of it goes toward interest or 34% of his payment.

    We wonder where the 7.99 APR comes into play?
    smoothy's Avatar
    smoothy Posts: 25,495, Reputation: 2853
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    #2

    Jul 6, 2017, 05:05 AM
    There is a minimum monthly payment, that number has no connection with the APR the card charges... the APR is Average Percentage rate.. based on annual interest... (which nobody should ever carry a balance that long on a credit card) but that is further broken down to billing periods and even daily on what is charged for actual interest.

    Lot depends on how the interest is actually calculated and charged and that may vary from card issuer to card issuer. Can be simple interest, front loaded, back loaded or any number of other means.

    Higher risk accounts tend to be heavily front loaded...which minimizes losses for the issuer in case of an eventual default by collecting more of their interest up front.

    No its not easy for the average person to completely understand.....I don't claim to completely understand it myself and I'm a degreed engineer. I don't work in the Financial industry.
    joypulv's Avatar
    joypulv Posts: 21,593, Reputation: 2941
    current pert
     
    #3

    Jul 6, 2017, 05:47 AM
    The easiest way to explain without all the details is that they are carrying the balance forward each month, and charging monthly for it, including on all the accrued interest. It's a ripoff, it's usury, but somehow it's legal.
    Are you sure about 7.99%? Was that introductory?
    It breaks my heart when people let amounts accrue more and more interest, until they can never pay it all off.
    pastor1189's Avatar
    pastor1189 Posts: 1,538, Reputation: 3
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    #4

    Jul 6, 2017, 06:09 AM
    Yes it is 7.99% it has been for many years. The reason I ask, he has an offer of a free interest credit card for 15 months, Possibly he could transfer the balance to this new card. But at the end of the transfer period it jumps to 17%. So he would have to pay it before the 15 months.
    smoothy's Avatar
    smoothy Posts: 25,495, Reputation: 2853
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    #5

    Jul 6, 2017, 06:23 AM
    He should pay this card off but keep it because it is a lower rate card... he'll end up with a worse card after the 15 moth period expires.

    When you start playing musical chairs with credit card balances you have started down a very slippery slope.

    Also..with credit card agreements..if he is late with or misses even ONE payment.(that qualifies as a breach upon the terms of the agreement), they reserve the right to END the promotion period early and then he is really screwed. So there are a lot of ways , that 15 month period can abruptly end.
    pastor1189's Avatar
    pastor1189 Posts: 1,538, Reputation: 3
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    #6

    Jul 6, 2017, 06:44 AM
    That very wise advice. Maybe he should pay more than $50.00 a month
    smoothy's Avatar
    smoothy Posts: 25,495, Reputation: 2853
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    #7

    Jul 6, 2017, 07:21 AM
    Also.. they can abruptly change the interest rate offered to the legal maximum in the event someone becomes delinquent with their account. Not sure what that amount is currently.. but its usually higher than the normal rate on the card.

    That's why its better to get a bank loan for any bills you can't pay off in a few months at most... unexpected things happen to good people, and outstanding credit card debt can balloon quickly in those cases... the bank loan won't.

    Trust me there, I learned that lesson the hard way back in the 80's.

    Treat the credit card like a checkbook....and pay it off in full when bill comes in...not like a revolving personal loan..that's were you can get into deep financial trouble real quick. Save the personal loans for banks, I mean REAL banks...not the shady business of payday and title loans which are legal loan shark operations, and you won't get burned as bad...those rates are not going to change over the term, Credit card teaser rates get people in trouble.
    ma0641's Avatar
    ma0641 Posts: 15,681, Reputation: 1012
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    #8

    Jul 6, 2017, 12:12 PM
    The interest is based on the balance, not the monthly payment. 8% of $2500 is $202.40 per year. $17 X 12 is $204.00

    I rounded off so close enough. NEVER just pay Minimum if possible.
    pastor1189's Avatar
    pastor1189 Posts: 1,538, Reputation: 3
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    #9

    Jul 6, 2017, 01:31 PM
    Thanks a million. This month only $33.00 of the $50.00 payment went against the balance of $2,500. I guess he should try to pay more than $50.00 a month.
    Thanks again for the fine advice.
    tickle's Avatar
    tickle Posts: 23,801, Reputation: 2674
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    #10

    Jul 6, 2017, 02:13 PM
    It isn't a lower interest rate card. It was an introductory offer at 7.99 and I too, fell for that years ago and ended up doing a debt consolidation, which worked for me. Never looked back. His best bet is to pay it off and cancel it.
    pastor1189's Avatar
    pastor1189 Posts: 1,538, Reputation: 3
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    #11

    Jul 6, 2017, 04:49 PM
    Yes he has been paying it for years at $50.00 a month.
    smoothy's Avatar
    smoothy Posts: 25,495, Reputation: 2853
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    #12

    Jul 6, 2017, 05:31 PM
    The credit card company loves card holders like him... they pay all the salaries there.. Believe it or not, it used to be worse... minimum payments were allowed to be so low... the balance kept going up even without new charges. The new higher minimum changed that... but the minimum barely pays the interest and reduces principle. That's exactly how people get deep in credit card debt. Believing the minimum payment still pays off the debt. Which is actually quite the opposite. It slowly creeps up on you until one unexpected expense has you unable to pay all of your bills that month...again...speaking from personal experience in the 80's.
    ma0641's Avatar
    ma0641 Posts: 15,681, Reputation: 1012
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    #13

    Jul 6, 2017, 06:29 PM
    Have him pay the maximum he can pay. " paying it for years" EGAD!!
    ScottGem's Avatar
    ScottGem Posts: 64,970, Reputation: 6056
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    #14

    Jul 7, 2017, 03:28 AM
    By law, the statement should indicate how long it would take to pay off the account paying only the minimum payment. And how much needs to be paid monthly to pay it in 3 years.

    Does he continue to use the card?

    Also, as noted, interest is charged on the balance not on the payment.

    But I disagree that one can't play the interest free game. Just that one has to be disciplined. I've managed to get almost all my credit card debt paid off by using balance transfers.
    pastor1189's Avatar
    pastor1189 Posts: 1,538, Reputation: 3
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    #15

    Jul 7, 2017, 04:04 AM
    He hasn't use the card for 6 years. But family problems from time to time, prevented him from making substantial payments. Poor soul.

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