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Credit Card Management

Why is my $20 bill only worth $5 bucks?

by Leslie Sausage

Keep this in mind next time you're tempted to "put the pizza on plastic".

The following information is based on an interest rate of 16.99% to 18.99%--

If your balance is $1000.00 and your minimum required payment is $20.00, then $15.00 of the payment goes to interest and only a small portion pays down the principal. If during the next month you charge $15.00 or $20.00 on that card the same thing happens again.

Here's a common scenario for many credit card users...

With a $1000.00 balance on your card and $20.00 minimum payment due ($15.00 will be for interest. Only $5.00 will be for the principal to actually pay down the balance. Your new balance is $995.00.

Yep! You paid $20.00, but it was only worth $5.00

By only paying the minimum due, you'll not be able to get off this merry-go-round for years!! You must work hard to get the balance down and here are just a few ideas:

Double the payment. This way your $40 will count for $25 on the principal rather than only $10 if done separately.
Avoid using the credit cards and thereby raising the balance.
Use cash for those little expenses that REALLY will multiply when charged to your credit card.
Pay the bill on time! One of my credit cards charges a $29.00 late fee. Yikes!
Watch that credit limit. Some cards charge a fee if you go over you credit limit--mine charges $29.00 for that privilege!
Learn to be more frugal! Wait a little longer to buy new items, another week on the next haircut, bring your lunch from home, and so on.

Some reasons to avoid credit card debt:

It robs you of your time and money because of the effort needed to get it paid back.
It robs you of your peace of mind because it's nagging at you each month.
Sadly, it's much more fun charging it up than paying down the balance.

Copyright 2000 by Leslie Sausage, all rights reserved.

Leslie Sausage is a wife, mother of four and freelance writer living in rural Texas. Visit her online at Frugal Homemaker ( Creative, resourceful and fun! Online to encourage you with creative and practical strategies for managing your resources, including money, material goods and time. We update often, so check back soon! Subscribe to the Frugal Homemaker e-letter by sending a blank email to

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