Topic 4 · Interactive tool

Credit Card Trap

Three ways to pay off the same card: the minimum, double the minimum, or a set amount you choose. The minimum barely dents the balance, which is why it takes decades.

Credit card payoff math · monthly compounding

interest = balance × (r/12) · new = balance + interest − payment

A $5,000 balance at 22% APR. Paying only the minimum takes … and costs … in interest. Paying $200 a month instead: … and ….

Minimum only

26.2 years

$5,872 total interest

Debt-free: …

Double the minimum

7.8 years

$3,167 total interest

Debt-free: …

Custom ($200/month)

2.5 years

$1,498 total interest

Debt-free: …

Minimum payment only Double the minimum Custom $/month

Starting balance $5,000

$500$20,000

APR 22.0%

5%30%

Custom payment $200/month

$25$1,000

Scenarios

Your first statement

balance − payment + $0.00purchases + interest = new balance

Interest is on last month's balance only:

Practise: review question 2 →Practise: Exam 2, question 12 →Lesson 4: The minimum-payment trap