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April 27, 2006
The Cost of Borrowing on a Credit Card
It's amazing how many people run balances on their credit cards when the interest rates they're charged are so high. About one in two card holders run a balance — paying interest rates from 14 to 24 percent.
Financial statistics show that most people will go out of their way to earn one-half to three-quarters percent more on a GIC. Yet we'll pay seven to 14 percent more interest than necessary, just because it's a credit card. If you have an outstanding balance of $1,000 on which you're paying 17 percent, that's costing you more than $14 a month, or almost $169 a year. And that's after tax dollars! You'd have to have a $1,000 GIC paying better than 24 percent to break even. Now, where can you find a GIC paying 24 percent in today's market?
Instead of carrying a balance on your credit card, you'd be better off taking a loan at 10 percent and paying off your credit card. If you'd go out of your way to earn one-half percent more in interest, how far out of your way would you go to save seven percent in interest costs? Fact is, you don't have to go far — just to your nearest financial institution. What are you waiting for?
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