How Credit Can Help and Hurt
Using credit wisely
Credit is a powerful tool. It’s convenient and especially useful in emergencies. But it’s also easy to let it get out of hand. Why should you be concerned? Consider this example:
If you had $3,000 of credit card debt with an annual interest rate of 14 percent, and you paid off $100 per month (and had no additional charges), it would take you approximately 38 months to pay your balance off. And more important, you would end up paying over $700 in additional interest—almost a quarter of the original debt.
|The Staggering Cost of Credit Card Debt|
Pay Off Debt
Source: Schwab Center for Financial Research. Assumes an interest rate of 14%. The amounts shown do not reflect any fees or penalties. This example represents a hypothetical debt scenario and is for illistrative purposes only.
Make your own calculations.
If you have credit card balances, you might be surprised to see how much that balance is really costing you. Use our cost-of-debt calculator to determine the total cost of not paying off your balance in full every month. And think of what you could be saving if you didn’t have to pay interest!
Think about your credit rating.
How you use credit not only has cost implications, but it can also directly impact your overall credit rating. Lenders can view your entire credit history when deciding to issue a car loan or home mortgage. Landlords and employers often have access to credit reports as well, so credit can even impact your ability to get an apartment or job.
What’s more, this information can be tied to you for years, so if you make poor financial decisions when you’re young, it could haunt you well into the future.