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Money IN/Money OUT Minimum Due = Maximum Damage
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Minimum Due = Maximum Damage
Toni splurged on gifts for her family and friends during the holiday season, charging $2,869.
She figures she will
eventually
pay off her debts by paying the minimum amout due each
month-typically 2.5% of the balance. If the APR on her credit
card is 18.22%, what will she actually pay for the gifts she
purchased?
| GIFT | PRICE PAID | FINAL COST, INCULDING INTEREST |
|---|---|---|
| Luggage | $258.00 | $567.00 |
| Movie Tickets | $101.00 | $221.00 |
| Computer | $2,149.00 | $4,731.00 |
| CDs | $50.00 | $109.00 |
| Necklace | $90.00 | $193.00 |
| Earrings | $129.00 | $280.00 |
| Teddy Bear | $22.00 | $48.00 | TOTAL | $2,869.00 | $6,302.00 |
Dilemma: Pay Back or Savings?
Q.
John and Mary recently inherited $3000. John wants to start an investment account for their children's education. Mary wants to pay off a charge account of about $3000. John says they can pay off the charge account a little at a time and use the $3000 for their children. Which is a better decision?A.
Paying off the charge account. On a typical charge account the interest is 19%-meaning that the interest on $3000 is more than $500 in a year. By paying the bill in full, you get to keep a whole year's worth of interest! That is the equivalent of investing the $3000 at 19% interest-a return that is hard to beat! But be sure that you save regularly, including the cost you avoided($500)!
North Carolina State University
College of Agriculture and Life Sciences
North Carolina Cooperative Extension Service
Family & Consumer Sciences Department