I’m sure that by now, many of you realize that you lose money by buying on credit. Still, I don’t think many of you appreciate just how much your credit cards are costing you. I’d like to really drive that point home.

Let’s say that Joe decides he needs new patio furniture. He doesn’t have $2,000 cash, so he slaps down his plastic card knowing that he can make minimum monthly payment, no sweat. And so that’s what he does, month in, month, out, year in, year out, and pretty soon he’s been doing this for one full decade. Surely it’s paid off by now! No, not even close. In fact, if Joe continues to make minimum monthly payment, he will be paying for that furniture for next 38 years! And once he has made final payment on his original $2,000 purchase, he will have paid an additional $5,300 in interest! Pretty disgusting, isn’t it? And this is at 14% APR. Many cards run higher.

Some of you more savvy credit card users out there might be thinking that you already know this, so you don’t fall for that trap anymore. You only get credit cards with a much lower interest rate, right? But do you notice that it’s only for a few months? And do you pay attention to what interest rate jumps to after that short introductory period? You kind of have to hunt around for this figure since they don’t put it in plain view. Believe me, credit card companies are not losing money on these lower introductory rate offers.

Credit card promotions are becoming even more devious. Now credit card companies are offering 0% interest on all balance transfers for up to 18 months! Wow, well, you’ve GOT to take advantage of that, right? I’ll show you three reasons why you shouldn’t.

First, even though you might be “pre-approved”, it is in no way certain that you will actually get this low rate. The credit card companies reserve right to reconsider their original offer based on your qualifications. They will often go ahead and issue you a credit card, but it could be at a substantially higher rate. Don’t assume that what you applied for is what you are getting.

Is compound interest gobbling up a significant chunk of your earnings? If you maintain an ongoing balance with a credit card company, compound interest is costing you much more than you probably realize.

Let’s start with basic interest, which is a fee that you pay to a lender for privilege of borrowing his money. This interest is attached to original amount at an agreed upon rate. Compound interest is calculated on balance owing plus any previous interest charges. So then you find yourself paying interest on interest. This compounding effect continues until it virtually takes on a life of its own. Credit card lenders make a killing putting this principle to work for them. Allow me to illustrate.

Let’s say you’re carrying a balance of $1,000 on a credit card with a 15% APR. If you pay only minimum each month, you could conceivably gnaw away at this debt for over 25 years and end up repaying a total of over $3,400! If, on other hand, you could commit yourself to paying $100 per month, this debt would be wiped out in less than a single year and interest would come to a much less offensive $75.

Now let’s look at what would happen if you took $1,000 and put it to work for you instead of against you. Let’s assume that you are able to keep your hands off this money and simply let it sit and earn 6% interest compounded annually. After 12 years, your money would have doubled without you adding one extra penny!