When The Federal Reserve Raises Interest Rates, Your Credit Card Bill Rises
The expert (and common sense) advice for credit card use is to pay balances off in full every month. But according to creditcards.com, about 40% of consumers don’t do that. And among that group, the average balance outstanding is $17,000. That’s $17,000 that the consumer has borrowed from the older version of himself. That’s $17,000 that was spent on things he couldn’t afford at the time. That’s $17,000 owed that could easily turn into $34,000 owed in just 5 short years if the card is continuously used and no serious effort to pay down the balance is undertaken. And finally, that’s $17,000 that can’t be invested to provide funds for old age. Just what does that last one mean in real numbers? Well, let’s look at what might happen if he invested that same amount. We’ll assume our borrower is 35 yrs old. And we’ll also assume that the average return on the stock market for the next 30 years will be about what it has been for the last 30. At age 65, our borrower could have accumulated almost $130,000 from an initial investment of $17,000. That amount represents the huge and largely unconsidered opportunity cost of credit card debt that many individuals unwittingly pay. And all it would take in many cases to avoid that huge cost would be to start thinking about debt differently.