I Pay Over $200 Per Month in Credit Card Debt Interest: What I Wish I’d Known

While credit cards are often necessary to build credit and bridge the gap for people who live paycheck to paycheck, they can also be a dangerous way to get into debt that is difficult to break free from.

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Many people who take out credit cards don’t pay close attention to the fine print where the actual interest rate is stated. Others don’t understand how interest accrual works, or whether they’re paying off principal or interest with their monthly payments.

Without clear understanding of the terms of a credit card, you can find yourself making choices you regret, as one young woman found out the hard way .

Building Credit at a Steep Cost

Devon Corra of Brooklyn, New York, has some regrets about her understanding of how credit cards work now that she’s carrying more debt than she hoped to. She considers herself someone who has always been responsible with money, but never received any formal financial literacy training at home or in school. She got her first credit card at the age of 19.

Corra put her focus on building credit, with the understanding that a good credit score would be important to her future but not knowing much more about how credit cards worked. “So I went into it knowing I needed to build credit. I wasn’t going to make the same mistakes as my parents, who weren’t very responsible. I went into it being really, really smart and responsible.”

Initially, she primarily used her credit card for food, gas, groceries and necessities that she would have to pay for anyway. “Then, every month, I would pay back that amount,” she said.

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Inflation Strikes

Unfortunately, when Corra was out of work for some time, she turned to credit to get her through. And once she was working again — at Trader Joes, where she’s hoping to move up to a manager position — inflation had started skyrocketing. Her boyfriend works a commission-based sales job, and they are also raising his two kids, ages 12 and 14.

“It’s insane here. Going out to eat is the same as getting groceries for the week, especially with two kids. Every last of our pennies go to bills. That’s why occasionally I’ll put a treat on a card, or one thing for myself a year,” she said.

The past four years she said her debt has gotten “out of control.” Even though she doesn’t have as much debt as other people she knows, it’s still scary.

Now, between two credit cards, she’s carrying a debt balance of over $10,000. On the card with the higher debt, she’s paying $200 every month in interest and not even touching the principal. On the smaller card, she’s making about $90 monthly payments, with less than $20 going toward the principal.

The Mystery of Interest

She finds it confusing how interest accrual works. “I still don’t really even know what that means. I don’t know what to look for in a card.”

Only recently did a friend alert her to the possibility of taking out a bank loan at a lower interest rate to pay off her credit card, so that she can start making a dent in her debt.

Because where things stand now, she explained, “I’m essentially thinking I won’t ever pay this off unless I get a large chunk of money from taxes or a work bonus or something.” Corra added, “Basically I’m just pretty much betting on having this forever and just being, trying to be OK with it.”

She hopes to be able to make bigger payments on her debt, but with her expenses and wages what they are today, that’s not very likely.

An Increasing Credit Line

One of the things that has surprised her is that paying off debt — when she paid off her car, for example — actually dropped her credit score. Another surprise is that despite carrying balances, her credit limit keeps increasing.

That’s partly what led to her “spiral” into debt when she was out of work. “I had a big credit limit, so I’m like, OK, I’ll just use this for a bit,” she said. But it didn’t take much for that “bit” to add up.

“They just keep increasing my limit and I have thousands more to spend. I’m not going to spend it, but what if I didn’t have that self control, or what if I didn’t know? They just keep trying to make me go deeper and deeper into debt,” she said.

While Corra tries to figure out her next steps, she and her boyfriend are trying to do better in teaching financial literacy to the children. “We’re trying to instill in them what we weren’t taught about this stuff,” she said.

If you’re facing debt that feels unmanageable, there are always options beyond just paying interest forever. Speaking to a financial advisor, tax accountant or debt counselor can open up opportunities to break free from debt.

This article originally appeared on GOBankingRates.com : I Pay Over $200 Per Month in Credit Card Debt Interest: What I Wish I’d Known