Financial Literacy Month Series: Let’s Break Down Buzzwords – The Real Cost of Borrowing
by Anoushka Mirchandani, Founder & CEO
It started with a free T-shirt.
A family friend had just started college when she signed up for her first credit card at a campus fair. No one explained how it worked—she just saw a booth, a free tee, and what felt like free money. So she signed up.
At first, it felt easy. Swipe here, swipe there. Then came the store cards, the “extra 10% off” pitches, the balances piling up. She didn’t think about interest. She didn’t know what APR was. She was 18, and no one had taught her.
By the end of freshman year, she was buried in credit card debt. Her parents didn’t bail her out. She picked up two jobs and spent the next few years digging herself out.
It was a hard lesson—and a turning point.
So this week, let’s talk about the real cost of borrowing money. Because credit isn’t just about spending—it’s about understanding how it works before it works against you.
APR: The Sneaky Price Tag
Let’s break it down:
APR stands for Annual Percentage Rate—aka how much extra you’ll pay to borrow money over a year.
Real-life example:
You buy a TV for $1,000 on a credit card with a 25% APR.
You only make the minimum payment each month (let’s say $25 a month).
Here’s what happens:
You’ll pay $1,172 in interest.
Your total cost? $2,172
And it’ll take you over 7 years (87 months) to pay it off.
That $1,000 TV?
It actually cost you more than double…
Top tip
Always pay off your credit card balance in full if you can. If you can’t, know exactly what your APR is and make a plan to pay it off fast.
Compound Interest: It Works With You—or Against You
Compound interest is when you earn (or owe) interest on your interest—not just the original amount. Over time, that snowballs and grows faster.
If you’re saving money, it’s your best friend.
If you’re in debt, it’s your worst enemy.
Worst enemy:
Owe $500 on a credit card? Interest adds up fast. Soon, you’re paying interest on interest—and $500 quietly turns into $800.
Best friend:
Put $500 in a savings account earning 5%? It becomes $525 in a year. The next year, you earn interest on $525—not just the original $500.
The longer it sits, the faster it grows—without you lifting a finger.
Top tip
The earlier you understand compound interest, the more powerful it becomes. Use it to grow your money—not your debt.
Credit Cards: Tool or Trap?
Let’s be real:
A credit card isn’t “free money.” It’s a loan—with strings… expensive strings attached.
Why it matters:
Used the right way, credit cards can build your credit, earn you points, and offer perks—I haven’t paid for a hotel in 8 years thanks to rewards.
Used the wrong way? They can quietly drag you into debt—just like they did with my family friend.
Red Flags to Watch For:
- Only making minimum payments — Keeps you in debt way longer.
- Not knowing your APR — It matters more than you think.
- Treating your credit limit like cash — Just because it’s available doesn’t mean it’s yours to spend.
Top tip
Only swipe for things you already have the cash for.
Set up autopay, avoid late fees, and don’t chase points unless you know you can pay it off in full each month.
Final Thoughts: Two Lessons In, and You’re Already Smarter Than Most—and Not Adding to America’s $1 Trillion Credit Card Bill
If credit has ever felt confusing, overwhelming, or like a trap—you’re not alone. But here’s the truth: credit isn’t bad. It’s just misunderstood.
The more you understand how borrowing really works—APR, compound interest, red flags to watch for—the more you can use credit as a tool instead of letting it use you.
Stay tuned: Next week, we’re talking all things saving and investing—how to grow your money, plan for the unexpected, and actually build wealth (without falling asleep).
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