Most credit cards will require a "minimum payment by" due date, and as low as three percent of the outstanding balance is a common minimum payment. Let's see what happens to your balance if you only make the minimum payment (3% of balance) each month. As before, use the 24.99% APR (the higher interest rate you have because you exceeded your limit). We'll organize the information in the following table which I have partially completed for you. month starting balance finance charge new balance minimum payment 1 $2000 $61.25 2 $2021.64 3 $40.84 4 $1941.78 xxxxxxxxxxxx xxxxxxxxxxxxxx xxxxxxxxxxxxxxx It will be helpful to fill-in the table as you work on the following problems. 16. With a beginning balance of $2000, no additional charges during the billing cycle and an APR of 24.99%, determine for month 1 a. the finance change b. the new balance c. the minimum payment Note that much of the minimum payment went to interest (the finance charge) and only the remainder of the minimum payment acted to reduce your original balance. Do you see the trap? It will take you a very long time to get out of debt if you only make the minimum payment because your outstanding balance is decreasing very, very slowly.

For month 2, assuming that you made only the minimum payment in month 1, determine a. starting balance b. finance charge c. new balance d. minimum payment 18. For month 3, assuming that you made only the minimum payment in month 2, determine a. starting balance b. finance charge c. new balance d. minimum payment 19. During the first three months, how much money did you send the credit card company making the minimum payments only? 20. How much of the money you sent them did the credit card company keep for itself? In other words, what was the total amount of finance charges (interest paid) for these three months? 21. By how much was the starting balance decreased after these three payments? (Subtract the balance at month 4 from the original balance.) Now, let's check. Does the total amount that you sent the credit card company (Problem 19) equal the total finance charges (Problem 20) plus the amount the balance was decreased (Problem 21)? It should! (They kept $123.73 which was about 2/3 of the money you sent them.) 22. Your finance charges were what percent of your payments?