Part II - Use the calculator
Remember the scenario above -- you charged a $1100 laptop, then stopped spending on your credit card and started paying off your debt.
A typical minimum payment for a credit card is 3% of the balance. What would your likely minimum payment be?
A typical minimum payment for a credit card is 3% of the balance. What would your likely minimum payment be? Assume you’ve got terrific credit (question 1 above): How long (in years and months, for example: 50 months = 4 years, 2 months) would it take you to pay off this laptop purchase if you only made the minimum payment? How much would you pay in interest over the length of your debt? Assume you’ve got poor credit instead (question 2 above): How long (in years and months) would it take you to pay off this laptop purchase if you only made the minimum payment? How much would you pay in interest over the length of your debt? How much money do you save, over the length of the debt, by having a good credit score? What could you, personally, use that money for? Shortly after you purchase the laptop, you receive your first credit card bill and forget to pay it, because it’s a new responsibility for you. What’s the impact of this mistake on the length of time it takes you to pay off the debt and the total amount of interest you pay? *For simplicity, assume your interest rate remains at the penalty APR for the length of your debt. BONUS: Review question 7 again. How long would it take you to pay off your debt, and how much total interest would you pay, if you had used the cash advance option instead of charging the laptop?