The cost of credit

Credit lets you spend money you don't yet have, but it isn't free: the lender charges interest, and on revolving debt like a credit card that interest compounds — the same snowball that grows savings, working against you. The headline number is the annual percentage rate (APR), which on cards is typically high. The real trap is the minimum payment: set as a small slice of the balance, it barely dents what you owe, so a balance can survive for years and you can pay far more in interest than the original purchases cost. Because unpaid interest is added to the balance and then itself earns interest, carrying debt gets more expensive the longer it lasts. Paying more than the minimum attacks the principal directly and sharply cuts both the payoff time and the total cost.