Some people view credit cards as free money, but nothing could be further from the truth.

Remember: Each time you charge something on your credit card it’s the same as taking out a small loan. And if you don’t pay the entire amount that you owe on time, you’ll have to pay the credit card company interest. Interest is what you pay for the privilege of taking extra time to pay back what you owe.

Watch out! Interest payments can catch up with you—and you can end up paying much more money than the items you charged are worth.

Let’s look at what can happen if you don’t pay the entire amount that you owe.

During the month of January, you charged $850 on your credit card. When you receive your statement, here are some of the numbers that you see:

Current balance: Minimum payment: Interest: Due date:

$850 $14 12.15% February 11

Let’s say that you decide:

• To pay only the minimum payment each month until the total amount is paid
• Not to charge anything else until you pay the total amount

If you decide to pay only the minimum payment of $14, this is what your payment schedule will look like. It will take you 95 months to pay off the $850 that you owe. However, you’ll also have paid an additional $476 in interest. That makes your total amount paid $1,326.

Also, if you want to pay off your credit card in 12 months, you’ll need to pay $75.58 per month.