My wife paid off one of our high interest credit cards recently. The big one. She called the credit card service representative and asked what the payoff figure was, then she paid off the card.
Simple, eh ?
Too simple.
A month later, we got another bill in the mail - it was for interest on the principle that we'd paid off midway through the month. The card company had conveniently failed to include a rough calculation of the interest due - on the principal - in the payoff figure cited. Had they done so we would have overpaid and that would have been the end of it. If they had let us. But - it seems - they do not want to release us from credit card debt slavery.
I think they're mad that we paid off the debt and so they've turned to devious and legally dubious strategems, refusing to let us slip from their greedy clutches.....
OK. So, we paid off the secret ( undeclared ) interest charge on the original principal. Fine. Well.....A month later, another bill arrived for about $3.25 : interest on the interest !
Aha, I thought, It's Zeno's Paradox !
So, we're sending off a payment of $4.00 to account for the interest on the interest on the interest, and I assume the credit card company will send back a $.75 refund check.... and then a bill for the interest on the interest on the interest on the interest of the original principal we paid off a few months ago will arrive at our door.
In financial terms that would be an exact expression of Zeno's paradox:
ZENO's PARADOX
Achilles - who is both very fleet of foot and also rather vain - decides to have a foot race with a tortoise ( the tortoise is really beside the point, a prop - Achilles actually wants to showcase his running prowess, perhaps so he can get laid or land an ad contract ) and - because Achilles is so much faster than the tortoise and has an overdeveloped sense of noblesse oblige - he gives the tortoise a healthy head start.
The starting gun fires, and the tortoise scuttles off. Achilles knows the exact length of the course and also how fast the tortoise can run a 5K road race. Which is to say not very fast. So Achilles hangs around. He drinks a caffeinated sports drink and tosses some hoop. The tortoise forges ahead. Hoping for a photo finish, Achilles waits long enough to give the tortoise - scuttling towards the finish line dimly in view - a fighting chance.
At last, Achilles ties on his Reeboks and hits the road. He covers 1/2 the distance between the starting line and the tortoise. Fine, Achilles will soon overtake the tortoise. Right ?
Not so fast : slow down.
In that same period of time the tortoise has advanced a little. Just a wee bit. OK. So, again, Achilles covers one half of the remaining distance. He's closing fast on the tortoise for sure. But - oh no ! - in that same period of time the tortoise has again advanced incrementally and so you can see that, quite logically, Achilles can never beat the frikkin' tortoise despite the fact that he can run at least 10 times as fast. Will the tortoise win the race ? Stay tuned.
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In a similar fashion my wife and I will never be able to pay off our credit card. We'll pay off the residual interest on the interest on the interest on the interest,but there will still always be residual interest left !
A year from now we'll still owe some absurdly tiny fraction of a penny in interest and - should we ever miss a payment on that billionth of a penny interest ( or whatever it might be ) we'll get socked with a $35 late payment fee and the cycle will begin anew. And if we should happen to neglect the situation for a sustained period of time Well quickly be - with compounding interest on a ballooning balance fueled by penalties, fees, and a yearly interest rate pushing 30% or %35 - hundreds of thousands of dollars in debt.
All from a fraction of a penny.
What a racket.
I'm assuming, by the way, that the solution to Zeno's Paradox - in terms of physics anyway - lies in the Quantum realm.
The solution to my credit card paradox, however, lies in politics.
In an early era of American politics, it took the energy of the Progressive and Populist movements to provide enough impetus for legislation to reform similar sorts of corporate abuses.
Those early to mid 20th Century American structural reforms only happened, however, after decades of political struggle - and spurred by the implied threat of socialism at the door.
We'd best get cracking.
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UPDATE :
So, I missed a key detail in my original narrative - The credit card company refused to let my wife and I pay off the balance and the interest on the balance in one whack, and so we got a bill the following month for unpaid interest on the principal we'd paid off :
$130. So, we sent a check for that amount.
But, it was summer and we were eking by vacationing on a pittance - and the check bounced.
BAM ! $75 in fees.
The balance went up to $200+
So we paid that off.
THEN we got another bill for interest on the late fee : $3.25.
Now I'm wondering this : is there, in the fine print of the crdit card agreement, some sneaky little clause that allows the company to charge interest on interest on late fees ?
I'll find out....