Recently, a friend told me her crazy story about getting into credit card debt. Luckily, Megan* had also just received some family money and was able to wipe out her longstanding balance. It could happen to anyone—witness how easily Megan found herself swamped by a monthly payment. To learn from her story and avoid her mistake, we must understand both the math and the temptation that landed her there.
The Temptation: Megan and Her Dirty (Victoria’s) Secret
Step into a Victoria’s Secret, and you’re thrust into the eye of a sensory tornado. Nine different perfume flavors coalesce within the human anatomy’s every vestibule. Before the brain can sort through the olfactory confusion, a chipper, raven-haired worker bee in a fitted, black suit jacket has a measuring tape secured around your bosom. What the?! Next thing you know, there’s a giant net shopping bag in your hands and it runneth over with push-up bras and lace cheekinis. Fuck. That happened fast.
They do one helluva marketing job over at the ol’ Vickie Hush Hush: Who hasn’t gazed up at one of the larger-than-life black and white posters of Alessandra Ambrosio that adorn the cotton candy walls and wondered what it would take to get the same sexual attention that she gets? If I dress these mediocre titties up in enough satin and lace, I wonder, could I have sex with who she’s having sex with? More importantly, would people be jealous of me? I will spend ANY amount of money to make people as jealous of me as I am of her.
The store is so tantalizing, it’s not hard to drop a couple hundo on underwear alone. (Or “ass trinkets,” as I like to call them. The term was coined by Caitlin Moran in her scrumptious book, How to Be a Woman, where she points out that the modern-day g-string hardly qualifies as underpants.) This is especially the case if you go in without a defined plan of attack like I do (one sensible nude bra every three years). VS taps into the deeply-ingrained human desire to make our reproductive organs undeniable, and on some level, that’s okay! Every vagina has the right to feel sexy and get all gussied up every now and again! But it becomes a problem when we spend money we don’t have to chase an image of who we aren’t.
Five years ago, Megan found herself in a similar situation. At the time, she was fresh outta High School and having difficulty making ends meet. She was young and beautiful, and stripping seemed like a glamorous way to earn some quick cash. VS made her feel excited for her new job and first big purchase of fanny floss and titty chambers. And justified, she felt, because they were her new work uniform.
At the register, the cashier asked Megan if she wanted to open an Angel Card: “You’ll receive 10% off the ENTIRE purchase!” the woman exclaimed.
Megan knew that she shouldn’t do it, but she also barely knew that she was opening a credit card. She definitely didn’t understand the long-term ramifications. Lookin’ down at her $500 pile of sexual fantasies, Megan couldn’t deny that saving $50 would be really nice. And while she didn’t really understand what “pay later” meant, it sounded like a pretty grand fuckin’ deal for someone so strapped for cash.
Five years after opening the card (and in a new profession), Megan still had a $500+ balance on her Angel credit card, even though she had already put hundreds and hundreds of dollars towards paying it down. She says she didn’t charge anything else to her card, either. For five years, she was paying into a void as dark and slippery as an Angel’s asshole after three months of juicing.
Like I said, Megan’s family gifted her some money, so she was able to mop up her credit card mess in one fell swoop. Megan spoke of the moment of financial relief as if someone lifted an anvil from her chest. When I asked her how much the whole ordeal cost her, she said she had no idea. My mental calculator buzzed like an angry vibrator.
The Math: How Much Megan Spent In Interest and Fees
While I don’t know exactly how much Megan spent, I was able to work backward on the math knowing that her balance remained at $500 five years after she charged the original $500. I assumed that she paid the minimum most months but missed a ton as well. Credit cards are bad, but this is wild. So, let’s be clear—this is negligence on Megan’s part. But considering that no one ever taught her about credit cards and I’m certain that department stores prey on people with bad credit or who’ve never had a credit card before, I don’t exactly blame her.
According to cardhub.com, the Annual Percentage Rate on a VS credit card is 25.74%. An APR is the approximate yearly rate you pay for borrowing money. Assuming that Megan made the minimum payment (approx. $20) most months, the late/missed payment fee was $37, she missed several payments per year, AND assuming that a one-time charge of $200 snuck its way onto her card, Megan could have closed out five years with a $500 balance.
If we roll with these assumptions, during those five years, how much did Megan spent in interest and fees? (drumroll plz!)
Total bill, after five years, for that one fateful purchase of cooter caskets and hooter baskets?
$1,724 for $500 worth of fart catchers and gourd gurneys. Panties and bralettes, that by the time Megan’s bill was paid off, had surely metamorphosed into crusty spider webs in the deepest corner of her underwear drawer.
(Again, there are many hypothetical situations that could have happened with Megan’s credit card to see her finish out five years with $500 remaining on her tab. These are the results of just one calculation.)
Understanding the Math
A 25% rate to borrow money (APR) is absurd. I would rather stand butt-naked next to Adriana Lima in Times Square in maximum humidity than pay 25% in interest to some credit card provider. To give you some comparison, a really good home loan would cost you 4%.
If I were to put $100 on a credit card that charges 25% a year and if that balance is paid off after exactly one year, I will have paid $125 for something that should have cost me $100. The actual calculation is much more complicated—interest calculations are done using a daily average—but this is the general gist of it. But wait! It gets worse. Interest compounds.
Compound interest is paid on BOTH the principal (the $100) AND all previous interest, and is the reason that credit card debt spirals harder than an aging bikini model on a stardust binge. And then, you’ve got late or missed payment fees basted onto your balance which—you guessed it—you could potentially pay interest on.
Let’s explore our example: With a $100 credit card balance and $25 interest payment, I owe $125 total. If the balance remains as it currently stands for another year, I am charged 25% of the entire, new balance of $125, which is $31.25. This brings my total balance to $156.25. The next year, I am charged 25% of that $156.25, which is $39.06, bringing the total of what I owe to $195.31.
Every year, you pay more and more interest than the year before, even if you aren’t buying more stuff:
In three years, the balance has doubled. And in eight years, a 25% rate of compound returns turned a $100 bill into a $600 bill. Could this happen to you? Probably not, to be honest. This would mean missing all payments. When you make even minimum payments on credit cards, you’re always paying off previous interest and a bit of the principal, so you don’t experience compounding. But if you’re missing payments, you sure as shit better believe that compound interest is coming for you. And your boyfriend. And will take a shit on your front porch. And light it on fire. And force feed it to you. And make you curtsy and say “thank you for this flame-roasted turd, it is divine.”
Here’s What Ya Do
Unless you can pay the balance off in full every month, try not to use credit cards in the first place. I retell Megan’s story because it represents all of the evil that can be rolled into one tiny piece of plastic: The seduction to spend money you don’t have, especially to try and fulfill some mindfuck standard of womanhood… A horrifying rate to borrow money to buy things you can’t afford… The ugly ramifications of missed payments, like fees and compound interest… Throwing money into a pit.
Think about credit cards for exactly what they are: paying a huge fee to spend money you don’t have. This should sound alarms. It’s not easy, but you have to address said reasons you want to spend money you don’t have. Of course, don’t beat yourself up—there’s profuse temptation in our world—but you gotta see it for what it is. Make no mistake: No one is offering you a credit card as a favor.
If you have credit card debt, always pay more than the minimum on your cards. Even if you don’t miss payments, paying the minimum is the Homer Simpson of debt pay-down strategies. It’ll get the job done (maybe), but it’ll be slow and excruciating, and it’ll cost you.
If Megan had made a 2% minimum payment every month, it still would have taken her 58 months to pay off the $500 balance. That’s almost five years! And during those five diligent years, Megan would have spent $362.47 in interest. Paying the minimum on a credit card can turn $500 bill into $862.47 faster than you can airbrush away an Angel’s ribcage. D’oh!
Need more inspiration to pay off debt? A story like Megan’s could end up costing her so much more than the hypothetical figures I presented above. Post-VS debacle, her credit score and history are in rougher shape than me after a night of drinking (I’m old and can’t hang). It might not seem like a big deal to you now, but you’re going to get a much better rate for a loan on a future home purchase if you have a good credit score and history. And a shitty interest rate on a home loan could cost you hundreds of thousands of dollars over time.
For some guidance on getting out of debt and shaping up a credit score, download my 8 Tools For Getting Your Financial Sh*t Together.
It seems so innocent, to agree to a credit card at Vickie’s, or The GAP, or Macy’s, or wherever.** People give it as much thought as they do to the $18 lotion they grabbed while idling in line to pay. And while we all recognize that tinsel goop that smells like “Seduction” or “Tease Flower,” and lingerie with names like “Perfect Body” or “Very Sexy” do not give us the thigh gaps and hot sex lives they advertise—thigh gaps come from some combination of genetics, malnourishment, and photoshop—we sometimes willfully ignore this truth. The lotion and the lingerie are adorable, acceptable, well-packaged cons—just like wrapping up a bubblegum pink credit card in a 10% day-of discount.
Buy the lingerie, buy the lotion, that’s fine. But don’t spend money you don’t have. Pad your bras, I don’t care—but not until after you pad your finances.
By the way, “Tease Flower?” WTF. That has to be referring to vagina. Huh. Dumpster Doggy, out <3
*Megan’s name has been changed.
**I’m using Victoria’s Secret to tell a story of department credit cards. This doesn’t mean they’re the only ones that do this. All department stores do. Vickie’s just happens to be where my acquaintance ended up with credit card debt (and also, they fat-shame women the hardest).