Jeanette Macintyre

Argosy University

MAT 108

Analysis of Credit Card Debt

Credit card debt is a reality for many in today’s world. Suppose that you had a $5,270.00 balance on a credit card with an annual percentage rate (APR) of 15.53 percent. Consider the following questions and prepare a report based upon your conclusions.

1. Most credit cards require that you pay a minimum monthly payment of two percent of the balance. Based upon a balance of $5,270.00, what would be the minimum monthly payment (assuming no other fees are being applied)? $105.40

$5270* .02= $105.40

2. Considering the minimum payment you just calculated, determine the amount of interest and the amount that was applied to reduce the principal. Hint: You’ll need to find the total interest for the year first. Annual interest $818.43 divide by 12 months= Interest paid: $68.20 principal paid: $37.20 $5270*.1553= $818.43 $818.43/12= $68.20 $105.40-$68.20= $37.20

3. Consider one of your credit cards. What is the balance? How is the minimum monthly payment determined? What would be the minimum payment? How much of the minimum payment goes towards interest? How much of the minimum payment goes towards the principal? If you do not want to share an actual balance or do not have a credit card, calculate these amounts using an imaginary credit card balance.

A.) My balance is $3,225 with 18% APR. Minimum payment is 3% of the Balance shown on billing statement or $20 whichever is greater.

B.) My minimum payment would be $96.75 $3,225 * .03= $96.75

C.) Amount applied to interest $48.38 Interest= $580.50 for the year (assuming no extra fee or purchases were applied). $3225*.18= $580.50 $580.50/12= $48.38

D.) Amount applied to principal= $48.37

$96.75-$48.38= 48.37

4. Now, examine the terms of one of your credit