Credit card interest
Before the Tax Reform Act of 1986, you could actually declare credit card interest as a deduction. Without this deduction, anyone who’s making the minimum payment on a balance in essence, is paying it off with “after tax dollars,” basically money you have already paid taxes on. So this means you are getting ripped more than you probably realize, especially if you are using a “bad credit” credit card which always charges sky-high interest.
Consider if you’re lucky enough to have a 7.9% Bank Card due to an excellent credit rating, making the minimum payments on a large balance will really end up costing you 11.6% after factoring in taxes.
If you are in the process of rebuilding your credit after bankruptcy, the rate on your secured credit card might be 16%, could easily turn into 24% if you live in a state with average taxes.
If you end up paying 30% due to late payment penalties, or other similar bill, you could be getting really ripped - at 43.8%!
Always pay off your balance in full, if are able to afford it. Financing charges can usually be avoided, although some bad credit cards such as Providian/Emerge will frontload their finance charges immediately upon any charge or purchase.
