You just received your first credit card and are excited to start building up your credit history. Your credit card has an APR of 24%. You decide to charge only $100 on the card each month, so that your spending does not get out of control. Looking at your first statement, you notice that the minimum payment for your first month is only $25.00.
In this activity, assume that you pay only the minimum payment for 6 months. For this card, the minimum payments are calculated as 25% of the total balance. To figure out how much each minimum payment will be, take the balance before payment and multiply it by 0.25. This may be a little simplified, but it will help you understand how minimum payments can affect your balance over time.
Remember that APR stands for Annual Percentage Rate. The credit card company will charge interest on your balance monthly. With a 24% APR, it works out to be about 1.8% per month. Therefore, to calculate the interest accrued, multiply the balance after payment by 0.018.