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Revolving balance

A revolving balance costs borrowers. Bankrate explains it.

With revolving credit, a consumer has a line of credit he can keep using and repaying over and over. The balance that carries over from one month to the next is the revolving balance on that loan.

Deeper definition

Revolving credit, such as a credit card, allows a consumer to make purchases up to a certain spending limit and pay down the debt each month. As long as the spending cap has not been reached, the consumer can make purchases using the line of credit. He does not have to pay off the total amount borrowed every month, but any balance that carries over month to month is the revolving balance.

A revolving balance accrues interest, which is why some smart credit card users pay off their statement balances every month, never paying interest. High revolving balances may indicate that a borrower is relying too much on credit. That is why it is important to keep revolving balances to a minimum. A consumer who uses too much of the credit extended to them can hurt his credit score.

Revolving balance example

Susan opens a credit card with a $1,000 credit limit and an interest rate of 14.99. She makes a purchase of $200. Susan understands she will pay interest on the balance until she pays it off, but she decides to carry a revolving balance. If Susan pays only the minimum payment of $20 per month, it will take her 11 months to pay off her balance.

Use’s credit card calculator to find out how long it will take you to pay off your credit cards.

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