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Making the Minimum Payment

Making the Minimum Payment. Why it is exactly what the credit card companies want you to do. Opening Activity. Why do credit card companies only want you to make “the minimum payment?”. Learning Objective. Describe how making minimum payments on a credit card is very costly.

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Making the Minimum Payment

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  1. Making the Minimum Payment Why it is exactly what the credit card companies want you to do

  2. Opening Activity • Why do credit card companies only want you to make “the minimum payment?”

  3. Learning Objective • Describe how making minimum payments on a credit card is very costly

  4. 3 minute Video Clip • Minimum payments explained with water: http://www.teachertube.com/viewVideo.php?video_id=223329&title=Credit_Card_Debt_Explained_with_Water

  5. Student Activity Sheet • Read the story problem first • Then look at the minimum payment schedule • Question #1 has been done for you to save time: • Adding up all the 154 “interest paid” payments equals $1,119.57

  6. Student Activity Sheet • With a partner answer questions 2-7

  7. Student Activity Answers • 1, 119.57 • C: 154 months of payments divided by 12 equals 12 years and 10 months • C: Month 111 ($5.08 principle v. $4.92 interest) • Yes (B = $10.00 month 90-153 the payment stays at $10.00) • Yes, monthly interest paid the first month ($14.41) divided by original balance ($910) multiply times 12 months equals 19%

  8. Additional Discussion Question • It takes Zach close to 13 years to pay off his $910 debt. • What would Zach probably do with his credit card during those 13 years? • What would have happened to Zach’s account had his company not had a monthly minimum payment of $10?

  9. Exit Activity • If you are going to use a credit card what sort of payment should you make each month? • Why is it so costly to only make the minimum payment each month? • What financial risk does it pose as well?

  10. Summary • The more you spend the more interest they make • The less you pay the more interest they make

  11. Additional Time • Play with online credit card payment calculators • Cash course’s site: http://www.calcxml.com/calculators/how-long-will-it-take-to-pay-off-my-credit-card?skn=124

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