Payback time

You can calculate the amount needed to pay off a balance more quickly at www.federal reserve.gov/creditcard calculator.

Does it ever make sense to agree to pay twice as much for something in exchange for being able to finance the purchase and pay it off over a long period of time?

Well, it depends.In this age of frugality, many people are focused, almost obsessively, on eliminating debt. Shakespeare and Ben Franklin both warned to be neither a borrower nor a lender, but not all debt is the same.

There can be bad debt and good debt, foolish debt and necessary debt.

Take buying a house, for example. If someone took out a $150,000, 30-year mortgage in mid-2009, when the going interest rate was about 5.3 percent, they would end up paying about $300,000 for their house over the life of that loan.

That's twice the price of the house, but who has $150,000 up front? And if someone did have that much cash on hand, they might reasonably decide to create an emergency fund with some of it, invest the rest and finance the house to take advantage of the relatively low cost of long-term debt.

So there's an example of a case where it makes sense to agree to pay twice the asking price in exchange for long-term financing. Expensive long-term assets, purchased with the low-interest long-term loans available today, are an example of good debt. Houses and cars can fit that description.

On the flipside, anyone look at a credit-card statement recently?

With high interest rates and low minimum payments, it can take many years and exorbitant financing charges to pay off short-term purchases such as a vacation or clothing.

Consumer-friendly federal regulations that kicked in during 2010 have made it much easier to understand the true costs associated with carrying a credit-card balance. Now, it's easy to see in black-and-white, right on the front of every statement, that making only the required minimum payments could mean you'll eventually pay double or even triple the cost of whatever you purchased.

The way credit cards work, the required minimum payment on a bill typically pays just 2 percent or 3 percent of the total owed. Paying off a tiny portion of a debt each month makes sense in the case of a 30-year mortgage, but not with credit-card debt.

With high interest rates and minimum payments, it could take nine years and more than $1,100 in interest charges to pay off a $1,000 balance, for example. That's assuming an interest rate of 19.9 percent, which is less than some credit-card rates.

It can be easy to get into trouble with credit cards, and sometimes there's little choice for people whose financial condition is precarious. When the utility bill is due, if a credit card is the only option for paying it, people are going to use that credit card.

The dichotomy of credit cards is that they can offer great benefits for people who pay every bill in full and on time — cash back, airline miles and so on — but they can be financial poison for those who carry balances month after month.

One cool thing that the Credit Card Accountability, Responsibility, and Disclosure Act did, in addition to clamping down on some abusive fee and interest practices, was require credit-card statements to show the amount a person needs to pay in order to eliminate their debt in three years.

Three years is still a long time to pay high interest rates, but it's a starting point for people who are paying only the required minimums.

Those who are carrying credit-card balances but who still have good credit scores can take one simple step to lighten the interest load and make it easier to pay those balances down to zero.

That step is to find a better credit card. Many cards offer introductory, yearlong rates of zero percent interest. If every dollar you pay goes toward reducing your debt rather than paying interest, the amount owed can drop quickly. Other credit cards, particularly those offered by credit unions, offer low fixed interest rates.

Many cards will charge a fee to transfer a balance, typically 3 percent of the amount, but if you can find a lower-rate card and stick to a plan of regular payments, you'll be better off.

And one last tip: If you do switch to a lower-rate credit card, you may not want to cancel the old one. Pay it off, and even destroy the card if you want to, but leave the account open because having available credit and not using it can help boost your credit score.

Reach David Slade at 937-5552 or Twitter @DSladeNews.