Credit Card Pays Interest
By paying your balance every month in full, you are actually using your card company’s money for free for your full billing period. Your card company always wants you to carry a balance so they can charge you interest and that’s how card companies make money.
If you are paying your balance in full, you are actually using your card company’s money at their high interest rate for free. Let me give you an example. In Sep 2006, I bought five British Airways return tickets for my trip at approximately $2000 each. My total cost was $2000 * 5 = $10,000. Most of the card companies charge 20% annual interest rate. If I do an approximate calculation for $10,000 at 20%, my one month interest charge would be $165. Yes, that’s right.
My one month interest charge would have been $165. But I avoided this charge by paying my balance in full and definitely my card company did not like it because they lost $165. If you look at this little differently, you can say that I borrowed money for one month at 20% interest rate but I have not paid any interest because my credit card company paid it for me.
What do all these translate into? Know how you are being charged and what your interest rate is. Pay your balance in full. It’s like using your card company’s money at their expense.