Tiny Leaps, Big Changes 498 - Why You Need to Understand Interest Rates
In this episode, we look at the APR on our credit cards and loans.
Quotes:
"More than 40% of Gen Z, around 30% of Millennials and Gen X, and almost 40% of Baby Boomers say they don’t know what the interest rate on their credit card is, according to a new survey by Stash, a micro-investing and banking app.
But it’s not like folks don’t need to know because they’re paying off their bill in full each month and not triggering any interest charges: Americans paid $113 billion in credit card interest last year, up 12% from 2017, and up a whopping 49% from five years ago when the national average was just $76.3 billion, according to MagnifyMoney, a financial product comparison website."
Takeaways:
1. A higher APR or Annual Percentage Rate leads to paying more overtime. This seems basic but is often underestimated.
2. If you aren't extremely careful, you can get into a situation where you are never able to get out of the debt (student loans).
3. Higher APR means less gets paid on the principle which means carrying a higher balance for longer and lowering your credit score.
Here's what to do:
- Find your APR for every line of credit
- Create a plan to repay those debts. Either based on APR or on balance (avalanche or snowball)
Resources: