Cogito
Consumer Math · Chapter 4 · Lesson 1
Credit Cards and Minimum Payments
The most expensive way to borrow.
12 problems · about 22 minutes · TEKS M.M.4.A
What this lesson teaches
The student computes credit card interest and explains why minimum payments extend debt.
- A quoted APR is charged monthly, so divide by 12.
- Paying the full statement balance avoids interest entirely.
- A minimum payment barely exceeds the interest, so the balance hardly moves.
Warm Up
Straightforward practice. Get the method working first.
5 problemsAPR 12%. What is the monthly rate, in percent?
Answer 1
Why 1%.
Why does a minimum payment barely reduce a balance?
Answer Most of it covers the interest just charged.
Why Interest consumes most of the payment.
APR 24%. Monthly rate in percent?
Answer 2
Why 24 ÷ 12.
$3000 at 2% a month. Interest in dollars?
Answer 60
Why 0.02 × 3000.
Minimum of 2.5% on $3000. Payment in dollars?
Answer 75
Why 0.025 × 3000.
Build It Up
The same ideas with more to keep track of.
3 problemsPayment $75, interest $60. How much comes off the balance, in dollars?
Answer 15
Why 75 − 60.
$1200 at 1.5% a month. Interest in dollars?
Answer 18
Why 0.015 × 1200.
Paying the full statement balance on time. Interest charged, in dollars?
Answer 0
Why The grace period.
Stretch Yourself
Mixed problems. Work out what kind of question it is before you start.
4 problemsPut the debt payoff priorities in order, best first.
Answer 1. Pay the full statement balance every month. 2. Pay well above the minimum on any balance carried. 3. Clear the highest rate debt first. 4. Pay only the minimum.
Why Paying in full avoids interest entirely.
$5000 at 2% a month. Interest in dollars?
Answer 100
Why 0.02 × 5000.
The Monthly Rate: An APR of 18%. What is the monthly rate, in percent?
Answer 1.5 %
Why 1.5%.
The Charge: A $2000 balance at 1.5% a month. Interest this month, in dollars?
Answer 30 dollars
Why $30.