Another type of personal loan is a credit card. A financial institution allows you to charge a purchase to your account, and you are required to pay the financial institution at a later time. As with other loans, credit cards charge interest. Interest rates can range from 3% - 22%.

When you are paying for debt on a credit card, the financial institution will require a minimum balance be paid each month. The higher the interest rate that is charged on the credit card, the larger the minimum payment will be.

You can use credit card payoff calculators such as the one in the following link to determine how much to pay each month and how long it will take to pay off a credit card.

When using the credit card calculator, be certain that the monthly charges (new spending or borrowing) are set to 0.

Part 2 Exercises:

Assume you have a balance of $1,900 on a credit card. Use the credit card payoff calculator to answer the following questions.

1. a. If the credit card has an annual interest rate of 13.6% and only the minimum monthly payment of $35 is made, how many months will it take to pay off the credit card?

b. What is the total amount that would be spent to pay off the $1,900 if the monthly payment is $35?

2. a. If the credit card has an annual interest rate of 13.6% and a monthly payment of $55 is made, how many months will it take to pay off the credit card? b. What is the total amount that would be spent to pay off the $1,900 if the monthly payment is $55?

3. a. If the credit card has an annual interest rate of 22% and only the minimum monthly payment of $45 is made, how many months will it take to pay off the credit card? b. What is the total amount that would be spent to pay off the $1,900 if the monthly payment is $45?

4. a. If the credit card has an annual interest rate of 22% and a monthly payment of $80 is made, how many months will it take to pay off the credit card? b. What is the total amount that would be spent to pay off the $1,900 if the monthly payment is $80?

5. What are some reasons the interest rates on credit cards vary?

6. What are your opinions on having and using credit cards for your purchases?