Paying Over $200 Monthly in Credit Card Interest: Lessons Learned the Hard Way
Credit cards can be essential for building credit and managing expenses, especially for those living paycheck to paycheck. However, they can also lead to significant debt that’s hard to escape.
Many people don’t pay attention to the fine print on credit cards, missing crucial details like the actual interest rate. Others don’t fully understand how interest accrues or whether their payments are going towards the principal or just the interest.
Without a clear understanding of credit card terms, you might make regrettable financial decisions, as Devon Corra from Brooklyn, New York, discovered. Devon, who always considered herself financially responsible, never received formal financial education. She got her first credit card at 19, aiming to build a good credit score, which she knew was important for her future. She believed she was being smart and responsible, unlike her parents.
Initially, Devon used her credit card for essentials like food, gas, and groceries, paying off the balance each month. However, when she was out of work for a while, she relied on credit to get by. Once employed again at Trader Joe’s, where she hopes to become a manager, inflation had surged. Her boyfriend’s commission-based job and their responsibility for his two kids added to their financial strain.
Living expenses in Brooklyn are high, and Devon found herself using credit for occasional treats. Over the past four years, her debt has spiraled out of control. She now owes over $10,000 on two credit cards. On the card with the higher balance, she pays $200 monthly in interest without reducing the principal. On the smaller card, her $90 monthly payments barely touch the principal.
Devon is confused about how interest works and only recently learned from a friend about the possibility of taking out a bank loan at a lower interest rate to pay off her credit card debt. She feels like she’ll never pay off her debt unless she gets a significant financial windfall.
Despite her efforts, paying off debt, like her car loan, has sometimes lowered her credit score. Surprisingly, her credit limit keeps increasing even though she carries balances.