» Student Handout

How Much Does Debt Cost?
• Although 55 million Americans pay off their credit card balances in full each month, 90 million Americans carry an average of \$8000 in debt from month to month.
• Credit card companies print a required minimum payment on the bill – usually 2-2.5 percent of the outstanding balance.
• Most Americans do not know what interest rate they are actually paying. Nor are they aware that their interest rate can change in the course of their payment.

Directions for Figuring the Cost of an Average Debt:

Using the information you find at: [URL http://aol1.bankrate.com/aol/calc/MinPayment.asp?nav=cc&page=calc_home] figure out how much repaying an \$8000 credit card debt will cost at interest rates of 12 percent, 19 percent and 29 percent

a) With only the required minimum monthly payment
b) With a fixed payment of \$250 (leave column for minimum payment blank)
c) With a fixed payment of \$500 (leave column for minimum payment blank)
Note: Assume that your minimum payment is calculated at 2 percent. Be sure to choose EITHER "minimum payment" OR "fixed payment" before you click on "calculate."

Credit Card Repayment Chart

You are an American family determined to pay off your \$8000 credit card debt. How long will it take? How much interest will you pay? (Remember: This chart is for debt you already have – it does not include any new debt you might incur during the period of repayment.) Be prepared to discuss your findings.

 Interest rate Minimum Payment Fixed Payment Number of Months to Pay Off Debt Total Interest Paid on \$8000 12 percent 0 \$250 \$500 19 percent 0 \$250 \$500 28 percent 0 \$250 \$500

Optional: Imagine that you have used a credit card to buy \$900 in gifts for friends and family. Using the link below, calculate your repayment schedule.

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