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Let’s say you borrowed $15,000 at a typical credit card rate of 21%. You’d be paying $299.90 per month. By the time you finished paying off the loan, you’d have paid a total of $20,987.70 in interest. But suppose you stretched this payment plan out to 30 years. Then you’d be paying $263.01 per month and end up paying a total of $79,693.60 in interest. I have no idea how you’d get an extra $150 per month for investments. Under this scenario, you’d only get $37 per month. Your investment is cut by more than three quarters!

Alright, let’s say then that you’ve negotiated a lower rate of 17% interest instead. To come close to paying $300 per month at that rate for 10 years, you will have to have borrowed $17,000. Then you pay $295.46 per month and end up paying a total of $18,454.72 in interest. But if you stretch the payments out over a 30-year period, your payments drop to $242.36 per month, and you pay a total interest cost of $70,251.33. You get $73 extra per month for investment, not $150. So your investment cut by more than half!

Okay, maybe the author assumes that your credit card interest rate is equivalent to your investment gains. So we’ll change the interest rate to 10%. In order to come up to the hypothetical $300 per month payment plan at this rate, you will have to borrow $22,500. With that, you pay $297.34 per month and a total of $13,180.70 in interest. Change the payment plan to stretch over a 30-year period and your payments drop to $197.45, with a total interest paid of $48,583.30. You get an extra $100 per month to invest. This is insane! At the end of 30 years, you’ve paid $26K more in interest and you’ve *still* knocked down your savings by a third!

Not to mention that as long as you’ve got a balance on that card, you’ll be paying interest on any additional purchases. I don’t care if your math-fu is weak or not. You have to run the numbers. What you don’t know *can* hurt you.

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*Assuming a 10% annual return on your money*

That’s a pretty big assumption, innit?

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