3 Years = 150 Months?
How long does it really take to pay off your credit card?
The federal Credit CARD Act of 2009, which requires companies to inform borrowers about the cost of credit, has helped consumers understand the true cost of debt. The law mandates that lenders explain how long it will take and how much it will cost to pay off your balance if you make the minimum payment each month. It also requires companies to show you how much you’ll save in the long run if you pay your card off in three years.
But here’s the kicker (that many people forget): That three-year mark will always be 36 months away! The amount to pay off in three years is recalculated every month, so it is, in essence, a moving target.
Three Harvard professors—Claudine Gartenberg, Dennis Campbell and Peter Tufano—explained to the Consumer Financial Protection Bureau that it would take a consumer with a credit card balance of $3,900 at 15.32 percent APR 150 months to get out of debt if he paid the 36-month amount listed on the statement.
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If you want to know how much it will take to pay off your balance in
36 months, look at your current statement. Whatever the three-year amount is on your current statement, pay that every month; disregard the new three-year figure on subsequent statements. But remember: If you make a purchase on your credit card, you’ll need to increase your monthly
payment accordingly.
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