I’ll be the first to admit, math is not my strong suit. Despite having a Tiger Mom and having taken years of Kumon I still have to reach for the calculator whenever I do math.

If you are mathematically challenged like me, you probably have no idea what your monthly payment is on a $10,000 credit card debt repaid over 5 year at 10% interest. How about 20%? 30%?

You may be surprised to learn that you would repay almost DOUBLE the amount you borrowed over 5 years at 30% interest.

Here’s the break down:
Loan amount: $10,000
Repayment: 5 years

Interest rate/ Monthly payment/ Total amount repaid
10% $212.47 $12,748.23
20% $264.94 $15,896.33
30% $323.53 $19,412.04

To put these numbers into perspective, if you were to repay the same $323.53 at 5% interest, you would have repaid the ENTIRE loan after 34 months (that’s 2 years and 10 months). In another words, you would be done with debt 2 years and 2 months sooner just by a reduction in the interest rate.

This is the reason why credit card debt is so to toxic. You end up paying 100%+ of the amount borrowed on interest alone.

One of the most common mistakes I see clients make is making the monthly minimum payments on their credit cards. Making the monthly minimum payment makes almost NO DIFFERENCE on the principal amount of the loan. For example, if you were to make only the monthly minimum payment on the $10,000 credit card loan, you would repay $24,261.14 over 365 months. (That’s slightly over 30 years!) The starting monthly minimum payment? $350.

So, sharpen your pencil, gather all of your bills and spend some quality time with your calculator. For those of you who are mathematically challenged like I am – have no fear. There are hundreds of online calculators that will do all the math for you. Here’s one of my favorites from Bankrate.com

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