WOW credit card facts!

[Jimmy Little]

found this on another forum!

How To Turn £5,000 Into £11,782

By Cliff D'Arcy (TMFCliff)
November 4, 2003


How would you like to turn £5,000 into £11,782? You would? No problem, simply buy the following 'Gold investment' from me:


I give you £5,000 today - lucky you!
You promise to repay me 2% a month, minimum £5
I charge you interest at 1.167% a month
You keep paying me and I keep charging you interest until you've paid me back in full.

Although this is a wonderful 'investment', it turns out that it's only great for me (the seller), not you (the buyer), because you get the £5,000 and I get the £11,782!


As Rolf Harris would say, "Can you see what it is yet?" Surprise, surprise, it's a credit card. What's more, it's no ordinary credit card: it's the Gold card issued by Britain's biggest credit card company.


To make things easier, I'll display the above figures in the usual way:


You have a balance of £5,000 on your Gold card
You make minimum monthly repayments of 2%, minimum £5
You are charged interest at 1.167% a month (14.9% APR)
You keep paying until your card debt is repaid in full.

So, if you make the minimum monthly repayments on a £5,000 debt on your Gold card, you will pay £6,782 in interest, which means that you will repay a total of £11,782. If this isn't bad enough, try to guess how long it will take you to repay your initial £5,000 debt?


Ten years? Very cold...


Twenty years? Getting warmer...


Thirty years? Warmer...


The answer is thirty-six years and two months (434 months). Start on your 24th birthday, and you'll have repaid your debt shortly after your sixtieth!!!


The only sensible way to use this card (and, on the whole, all bog-standard credit cards) is to pay it off in full every month. Borrowing on credit cards at standard interest rates is a complete mug's game!


So, next time you get that mailing for a Gold or Platinum card, ask yourself just how golden it is. On closer inspection, you'll usually find that it's a pretty tarnished deal for borrowers.


good site, loads more stuff too

http://www.fool.co.uk/news/comment/2003/c031105d.htm

[Pezza]

As the chairman of Barclaycard says, you'd be stoopid to borrow money on a credit card!

[Enverex]

Yeah, but at Uni they are giving away free popcorn machines with every Barclaycard! No that I would ever use the card though....

NS

[TeePee]

But remember compound interest works both ways. A simple investment of a couple of hundred a month will add up to 300K by the time I reach retirement age. But with a few percent of compound interest I'd be a millionaire.

The simple answer is, Never, EVER, take extended credit on a credit card.

http://www.fool.co.uk is a great place for financial advice, and their article on compound interest is a must read!