Debt can be more expensive than you think

April at BrightDime is going to be all about debt. Credit card debt in the US is now over $1 trillion dollars and estimates are that over half of active cards are carrying a balance.

The first, and most important, thing you need to understand about debt is just how expensive it can be. That means understanding compound interest. Compound interest can cut both ways; it’s great when it’s earning you money in a savings account but it’s also what makes high interest debt like credit cards so expensive.

Here’s a quick quiz. If you buy something for $1,000 and put it on a credit card with a 20% interest rate, how much more expensive did you make that purchase if you pay it off by only making the required minimum payments every month? How much will you pay in interest on top of the original $1,000?

A. $100 (total cost $1,100)
B. $267 (total cost $1,267)
C. $661 (total cost $1,661)

You can find the answer right here.