Minimum Payments Mean

Costly Consequences
CHAPTER 4, LESSON 1

NAME DATE

DIRECTIONS
Read the scenario below, analyze the data, and use the Minimum Payment Schedule chart to answer the
following questions.

The Scenario
Zach, a college freshman, recently signed up for and received his first credit card. The credit
card has a 19% annual percentage rate (APR)—that’s the interest rate he’ll have to pay to use
the money he borrows—and it has a minimum payment of only $10 or 2.5% of the balance
(whichever is larger). Zach promised himself that he would use the credit card only for
emergencies. In the middle of December, Zach had to take off work for a couple weeks to
finish some end-of-semester projects, study for his finals, and spend time at home over the
holiday break. Since he won’t get a paycheck again until January, he used his credit card for
several items he considered emergencies.

ZACH’S CREDIT CARD “EMERGENCIES”

Gas for the drive back home $55

Food (snacks for studying) $45

Christmas gifts for family $225

Books for next semester’s classes $585

Total Debt $910

Many people in debt only make the minimum monthly payments on their credit cards.
So, what will happen if Zach just makes the minimum payments on this one credit card?
Assuming he charges nothing else and makes every minimum payment on time (two big
assumptions), it will take him 154 months to pay for these “emergencies.”

FO U N DATI O NS I N PERSONA L FI NA NCE PAGE 1 O F 4

 Making the Minimum
Pa imum

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Pa cipal

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Pa rest

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Pri

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Int

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Mi

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Mi
1 $22.75 $14.41 $8.34 $901.66 53 $14.09 $8.93 $5.17 $558.55 104 $10.00 $5.45 $4.55 $339.63
2 $22.54 $14.28 $8.27 $893.39 54 $13.96 $8.84 $5.12 $553.43 105 $10.00 $5.38 $4.62 $335.00
3 $22.33 $14.15 $8.19 $885.20 55 $13.84 $8.76 $5.07 $548.36 106 $10.00 $5.30 $4.70 $330.31
4 $22.13 $14.02 $8.11 $877.09 56 $13.71 $8.68 $5.03 $543.33 107 $10.00 $5.23 $4.77 $325.54
5 $21.93 $13.89 $8.04 $869.05 57 $13.58 $8.60 $4.98 $538.35 108 $10.00 $5.15 $4.85 $320.69
6 $21.73 $13.76 $7.97 $861.08 58 $13.46 $8.52 $4.94 $533.42 109 $10.00 $5.08 $4.92 $315.77
7 $21.53 $13.63 $7.89 $853.19 59 $13.34 $8.45 $4.89 $528.53 110 $10.00 $5.00 $5.00 $310.77
8 $21.33 $13.51 $7.82 $845.37 60 $13.21 $8.37 $4.85 $523.68 111 $10.00 $4.92 $5.08 $305.69
9 $21.13 $13.38 $7.75 $837.62 61 $13.09 $8.29 $4.80 $518.88 112 $10.00 $4.84 $5.16 $300.53
10 $20.94 $13.26 $7.68 $829.94 62 $12.97 $8.22 $4.76 $514.13 113 $10.00 $4.76 $5.24 $295.29
11 $20.75 $13.14 $7.61 $822.33 63 $12.85 $8.14 $4.71 $509.41 114 $10.00 $4.68 $5.32 $289.96
12 $20.56 $13.02 $7.54 $814.79 64 $12.74 $8.07 $4.67 $504.74 115 $10.00 $4.59 $5.41 $284.55
13 $20.37 $12.90 $7.47 $807.32 65 $12.62 $7.99 $4.63 $500.12 116 $10.00 $4.51 $5.49 $279.06
14 $20.18 $12.78 $7.40 $799.92 66 $12.50 $7.92 $4.58 $495.53 117 $10.00 $4.42 $5.58 $273.48
15 $20.00 $12.67 $7.33 $792.59 67 $12.39 $7.85 $4.54 $490.99 118 $10.00 $4.33 $5.67 $267.81
16 $19.81 $12.55 $7.27 $785.32 68 $12.27 $7.77 $4.50 $486.49 119 $10.00 $4.24 $5.76 $262.05
17 $19.63 $12.43 $7.20 $778.12 69 $12.16 $7.70 $4.46 $482.03 120 $10.00 $4.15 $5.85 $256.20
18 $19.45 $12.32 $7.13 $770.99 70 $12.05 $7.63 $4.42 $477.61 121 $10.00 $4.06 $5.94 $250.25
19 $19.27 $12.21 $7.07 $763.92 71 $11.94 $7.56 $4.38 $473.23 122 $10.00 $3.96 $6.04 $244.22
20 $19.10 $12.10 $7.00 $756.92 72 $11.83 $7.49 $4.34 $468.89 123 $10.00 $3.87 $6.13 $238.08
21 $18.92 $11.98 $6.94 $749.98 73 $11.72 $7.42 $4.30 $464.60 124 $10.00 $3.77 $6.23 $231.85
22 $18.75 $11.87 $6.88 $743.11 74 $11.61 $7.36 $4.26 $460.34 125 $10.00 $3.67 $6.33 $225.52
23 $18.58 $11.77 $6.81 $736.30 75 $11.51 $7.29 $4.22 $456.12 126 $10.00 $3.57 $6.43 $219.09
24 $18.41 $11.66 $6.75 $729.55 76 $11.40 $7.22 $4.18 $451.94 127 $10.00 $3.47 $6.53 $212.56
25 $18.24 $11.55 $6.69 $722.86 77 $11.30 $7.16 $4.14 $447.79 128 $10.00 $3.37 $6.63 $205.93
26 $18.07 $11.45 $6.63 $716.23 78 $11.19 $7.09 $4.10 $443.69 129 $10.00 $3.26 $6.74 $199.19
27 $17.91 $11.34 $6.57 $709.67 79 $11.09 $7.02 $4.07 $439.62 130 $10.00 $3.15 $6.85 $192.34
28 $17.74 $11.24 $6.51 $703.16 80 $10.99 $6.96 $4.03 $435.59 131 $10.00 $3.05 $6.95 $185.39
29 $17.58 $11.13 $6.45 $696.71 81 $10.89 $6.90 $3.99 $431.60 132 $10.00 $2.94 $7.06 $178.32
30 $17.42 $11.03 $6.39 $690.33 82 $10.79 $6.83 $3.96 $427.64 133 $10.00 $2.82 $7.18 $171.15
31 $17.26 $10.93 $6.33 $684.00 83 $10.69 $6.77 $3.92 $423.72 134 $10.00 $2.71 $7.29 $163.86
32 $17.10 $10.83 $6.27 $677.73 84 $10.59 $6.71 $3.88 $419.84 135 $10.00 $2.59 $7.41 $156.45
33 $16.94 $10.73 $6.21 $671.52 85 $10.50 $6.65 $3.85 $415.99 136 $10.00 $2.48 $7.52 $148.93
34 $16.79 $10.63 $6.16 $665.36 86 $10.40 $6.59 $3.81 $412.17 137 $10.00 $2.36 $7.64 $141.29
35 $16.63 $10.53 $6.10 $659.26 87 $10.30 $6.53 $3.78 $408.40 138 $10.00 $2.24 $7.76 $133.52
36 $16.48 $10.44 $6.04 $653.22 88 $10.21 $6.47 $3.74 $404.65 139 $10.00 $2.11 $7.89 $125.64
37 $16.33 $10.34 $5.99 $647.23 89 $10.12 $6.41 $3.71 $400.94 140 $10.00 $1.99 $8.01 $117.63
38 $16.18 $10.25 $5.93 $641.30 90 $10.02 $6.35 $3.68 $397.27 141 $10.00 $1.86 $8.14 $109.49
39 $16.03 $10.15 $5.88 $635.42 91 $10.00 $6.29 $3.71 $393.56 142 $10.00 $1.73 $8.27 $101.22
40 $15.89 $10.06 $5.82 $629.59 92 $10.00 $6.23 $3.77 $389.79 143 $10.00 $1.60 $8.40 $92.83
41 $15.74 $9.97 $5.77 $623.82 93 $10.00 $6.17 $3.83 $385.96 144 $10.00 $1.47 $8.53 $84.29
42 $15.60 $9.88 $5.72 $618.10 94 $10.00 $6.11 $3.89 $382.07 145 $10.00 $1.33 $8.67 $75.63
43 $15.45 $9.79 $5.67 $612.44 95 $10.00 $6.05 $3.95 $378.12 146 $10.00 $1.20 $8.80 $66.83
44 $15.31 $9.70 $5.61 $606.82 96 $10.00 $5.99 $4.01 $374.11 147 $10.00 $1.06 $8.94 $57.89
45 $15.17 $9.61 $5.56 $601.26 97 $10.00 $5.92 $4.08 $370.03 148 $10.00 $0.92 $9.08 $48.80
46 $15.03 $9.52 $5.51 $595.75 98 $10.00 $5.86 $4.14 $365.89 149 $10.00 $0.77 $9.23 $39.57
47 $14.89 $9.43 $5.46 $590.29 99 $10.00 $5.79 $4.21 $361.68 150 $10.00 $0.63 $9.37 $30.20
48 $14.76 $9.35 $5.41 $584.88 100 $10.00 $5.73 $4.27 $357.41 151 $10.00 $0.48 $9.52 $20.68
49 $14.62 $9.26 $5.36 $579.51 101 $10.00 $5.66 $4.34 $353.07 152 $10.00 $0.33 $9.67 $11.01
50 $14.49 $9.18 $5.31 $574.20 102 $10.00 $5.59 $4.41 $348.66 153 $10.00 $0.17 $9.83 $1.18
51 $14.36 $9.09 $5.26 $568.94 103 $10.00 $5.52 $4.48 $344.18 154 $1.20 $0.02 $1.18 $0.00
52 $14.22 $9.01 $5.22 $563.72

FO U NDATI O N S I N PERSONA L FI NA NCE PAGE 2 O F 4

 Minimum Payments Mean Costly Consequences
CHAPTER 4, LESSON 1

1. How much will Zach’s first minimum payment be—$10 or 2.5% of the balance? How
much would the 2.5% be?
0.025

2. Zach will make 154 payments. How many years is that to pay off this $910 of debt?
This is equivalent to 12 years and 10 months

3. At what month does the amount of the monthly principal payment (the money he
actually borrowed) start to increase?
The amount of the monthly principal payment does not increase by month.

4. What percentage of Zach’s first year of total payments is just interest?

9.17%

5. How many months/years will it take before the principal portion of Zach’s payment is
greater than the interest portion of his payment?
more than 5 months

6. What is the outstanding balance at month 91 when the $10 minimum monthly payment
kicks in? How long would someone typically think it would take to pay off that balance at
$10 per month? How long will it actually take when the interest is added each month?
5 years and 3 month or 63 month

FO U N DATI O NS I N PERSONA L FI NA NCE PAGE 3 O F 4

 Minimum Payments Mean Costly Consequences
CHAPTER 4, LESSON 1

7. The 19% APR is the annual interest rate, but it is compounded monthly. What is the
monthly interest rate?
monthly_interest_rate .

8. How could Zach have avoided using a credit card and still pay for his large expenses
and have time off from work?
estimated the amount of money needed for these expenses and saved a portion of his earnings for
the upcoming expenses and time off from work.

9. Bonus Question: After 154 minimum payments, how much would Zach pay for his $910
of “emergency” purchases? How much money in total interest did he pay to the credit
card company?
$16,691.48

10. Bonus Question: Why do you think credit card companies don’t mind if you just make
the minimum monthly payments?
the remaining balance that is not paid off will continue to accrue interest, often at a high rate

FO U N DATI O NS I N PERSONA L FI NA NCE PAGE 4 O F 4