# 4.3.6 Cost of credit cards

If you pay off your credit card balance in full by the due date indicated on your statement, you won't pay any interest on most cardsâ€”in effect, you will be borrowing money for free.

If you don't pay your balance in full by the due date, you will have to pay interest. But you can still reduce the amount of interest you pay, depending on how much you pay each month.

Take these three examples. Assume that you have a credit card balance of \$1,000 and that the annual interest rate is 18 percent.

• Option 1: You make the minimum payment of 3% or \$10, whichever is greater.
• Option 2: You make the minimum payment of 3% or \$10, whichever is greater, plus an additional amount of \$5 each month.
• Option 3: You pay a fixed amount of \$100 each month.

The chart shows how long it will take to pay off the charges and how much interest you will pay using each of the three payment options.

\$1,000 at 18%

Option 1
Make minimum payment

Option 2
Make minimum payment + \$5/month

Option 3
Pay fixed amount of \$100/month

Time to pay off 10 years 6 years and 2 months 11 months

Interest paid

\$798.89

\$512.52

\$91.62

Total paid

\$1,798.89

\$1,512.52

\$1,091.62

Amount saved

-

\$286.37

\$707.26

Time saved

-

3 years and 10 months

9 years and 1 month

Clearly, you can pay off the balance much more quickly, and pay much less interest, if you pay a higher amount every month.