Final answer:
Credit card interest can significantly increase the real cost of purchased items, leading to a net loss when compared to lower-earning savings. Americans pay billions annually in credit card interest, making items costlier over time.
Step-by-step explanation:
The effect of credit card interest on the real cost of items can significantly increase the amount you ultimately pay. For instance, if a person has a credit card debt of $1,000 at a 15% yearly interest rate, they will have to pay $150 in interest annually. If they also have $2,000 in a savings account that earns just 2% in interest, they will only receive $40 per year from the bank. This leads to a net loss of $110 each year. This situation illustrates how carrying a balance on a credit card can outweigh the benefits of savings, especially when the interest earned on savings is lower than the interest paid on debt.
Looking at the broader market, the situation is even more stark. With average interest rates for credit card borrowing around 15% per year, American consumers collectively pay tens of billions of dollars every year in interest on their credit cards, not to mention additional fees for the credit card service or for late payments. This indicates that the real cost of items purchased on credit can be substantially higher than their ticket prices when cards are not paid off in full monthly.