First Person: The 5 Things the Credit Card Companies Don't Want You to Know

Dealing with credit card companies for many years, both professionally and personally, I've learned to see through the veil of easy money. Questions like "how long will it take me to pay off the loan?", "how much will it cost me?", or "can my minimum payment skyrocket suddenly?"-never occur to young borrowers, and credit card companies are happy to sweep the answers beneath a carpet of small print. A change in government regulations has made the information more readily available, if you know where to look for it. So here are the 5 things credit card companies don't want you to know.

Payoff Date

Unlike auto loans, credit card loans go on forever, or close to it. If you only pay the minimum payment, a $10,000 balance might take you 18 years to pay off. A recent law requires banks to plainly show on your credit card statement a comparison between paying minimum payments only and paying higher payments (about 60% more) in order to pay off the card in 3 years. Scroll down your statement to find this information, which can sometimes be on the bottom of the third page. If you find the suggested 3-year plan financially impossible, consider keeping your minimum payments fixed, even though your bank will lower them every month.

Actual Interest

Another reason credit card balances don't shrink relates to how banks apply interest to your loan. In effect, you not only pay interest on the amount you owe but on the interest you owe. So if you borrowed $1,000 at 10% interest, the next year your debt will be $1,100 and you will be charged a 10% interest on this higher amount. With every year the interest will grow and so will the debt on which you pay more interest. In the end, you'll be paying interest on the interest on the interest.

Payoff Figure

If you pay your minimum payment every month, you'll find yourself paying close to double the original debt by the time you pay off the loan almost a quarter of a century later. Thus, for example, on a $12,000 loan with 11% APR, you would end up paying the bank $21,000 over 19 years. On your credit card statement, look for the box that compares minimum payments to 3-year payments. You'll be able to see how much more it will cost you if you continue to pay off your loan with minimum payments only.

Promotion Expiration

Credit cards are required to disclose the interest rate on the statement. One account may have various interest rates applied to promotions, purchases or cash advances. However, credit card companies rarely post any relevant expiration date beside the APR. If, for example, you took advantage of a balance transfer offer with a low rate for one year, you may not notice immediately when the promotion comes to an end. Only if the minimum payment rises will you be alerted, but often this does not happen as banks keep the minimum payment at its prior rate (even after promotional balance transfers) or set a higher minimum payment for a new account with an introductory rate.

Variable Rates

Credit cards often invite you to take a loan with an introductory rate. In the small print you'll find the actual interest rate of the card, to which your balance will be switched after the promotion expires. If the APR happens to be variable, the bank will be able to alter the interest on the account at any time. This may happen due to an increase in interest rates by the Federal Reserve. It can also happen if your credit card company reviews your credit report periodically and decides that your risk factor has increased. Then, without warning, your minimum payment may rise drastically as your interest skyrockets.

The thing to conclude is simple: Don't trust the minimum payment that banks offer you, like bait on a hook. Instead, take control and decide on your own loan term. Use this loan calculator to determine how long it will take to pay off your credit card with payments that exceed the minimum payment and works for you.

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