This calculator will first calculate the amount of interest you will end up paying if you continue making only the minimum monthly payment on your credit card.
Next the calculator will perform the same calculations on rates that are 1-4% lower so you can see how much you would save if you could get your rate lowered -- either by calling the credit card company or by transferring your balance to a lower rate card.
Finally, the calculator will also show you how much you could have earned had you paid cash for the purchases and invested the avoided interest charges - for all 5 interest rates.
Have you ever stopped to consider that when you spend a dollar on interest charges, not only are you forever giving up the right to spend that dollar on anything else, but you are also giving up the right to earn compounding interest on that dollar ... for the rest of your life!
I refer to this loss as "the opportunity cost of foregone interest earnings."
Of course, the concept of foregone interest earnings applies to each and every dollar you spend on interest charges (or anything else that has a dwindling or non-existent resale value) during the course of your lifetime. These foregone interest earnings can add up to hundreds of thousands, even millions of dollars.
The rich, and those who are on their way to becoming rich, understand the principle of foregone interest earnings (opportunity costs), whereas most people who are not rich do not. The latter group just keeps sending their potential future wealth to the rich -- mostly in the form of interest payments.
I'm sure you've heard the term "ripple effect," which is a term often used to describe the ever expanding consequences of an event, action, or decision. Of course the term is coined from the ever-expanding ripples that are created by dropping an object into a pool of water.
When you make a one-time purchase of a non-appreciating, inexpensive product or service, the result is a small ripple effect throughout the course of your financial future.
However, when you make repetitive expenditures for non-essential products or services that have a dwindling or non-existent resale value, the results are similar to what happens when two geological plates shift on the bottom of the ocean floor. A small, almost undetectable underwater shock wave is sent out in all directions. But by the time this shock wave reaches land it can form a huge wave that springs from out of nowhere and hits with devastating force. In this case, the "Ripple Effect" results in a "Tsunami Effect."
As the calculator will attempt to show, charging up balances on credit cards while making only the declining minimum monthly payment can have the same devastating impact on your financial future as a Tsunami has on the shores it crashes into. And while it's too late to completely erase mistakes from your past, it's never too late to attempt to minimize the damages.
As you will see from the calculated results on this page, the time you devote to researching and studying ways to lower your current interest rates can pay huge dividends down the road. Even achieving a 1% drop in your APR can save you thousands of dollars in foregone interest earnings -- thereby reducing the size of the financial Tsunami your past actions may have created.
Then, if you are successful at lowering your interest rates, the savings (earnings, i.e., "a penny saved is a penny earned") can be used to speed up the repayment of high APR debts, thereby further reducing the negative impact on your financial future. Remember, money invested in paying down high APR debt will bring you a guaranteed, tax-free return equal to the debt's high APR.
With that, let's use the following credit card interest rate cost comparison calculator to compare the long term effects of your current interest costs and forgone earnings with that of APRs that are 1%-4% lower.
Check Out My Other Super
Credit Card Calculators
To Help You To
Calculate Your ...
Current balance: The current balance on your credit card. If you have added any charges to your card since your last statement, be sure to include those as well.
Annual interest rate (APR): The annual interest rate you are being charged by the credit card company. Enter as a percentage (for .1899, enter 18.99%).
Percentage return on investments: The annual percentage return you feel you could earn on your investments. Enter as a percentage (for .06, enter 6%).
Current age: Your current age or whatever starting age you would like to run the calculations for. The calculator will use this figure to calculate the opportunity cost of carrying a balance on a credit card and only making the minimum monthly payments between the starting age and the ending or retirement age.
Age you plan to retire: The age you plan to retire at, or whatever ending age you would like used for the calculations. The calculator will use this figure to calculate the opportunity cost of carrying a balance on a credit card and only making the minimum monthly payments.
Rate result column: The first line in this column is your current annual interest rate, followed by 4 rates that are each 1% lower than the previous rate.
# Pmts result column: This column shows the number of minimum monthly payments you will make before the balance is paid off, for the corresponding rate listed in the far left-hand column.
Interest Cost result column: This column shows how much interest you will end up paying if you make only the declining minimum monthly payments for the corresponding rate listed in the far left-hand column.
Interest Savings result column: This column shows how much interest you could save if you lowered your current annual percentage rate to one listed in the far left-hand column.
Foregone Value result column: This column shows how much your investment could have grown to if you had paid cash for your purchases and invested the avoided interest charges. Note that investment growth is calculated starting with your current age and ending either when the credit card is paid off, or when you reach retirement age, whichever is longer.
Opp. Cost Savings result column: This column shows the reduced opportunity cost of lowering your current annual percentage rate to the one listed in the far left-hand column.