Part 1

1. Start with a beginning balance of $5,000.
2. The interest rate is set at 18.99% and the finance charge is calculated for you. Remember, if this is a new credit card, or a new charge, there is no finance charge in the first month as that is generally a grace period. Finance charges will begin in month 2 when there is a carry-over balance on the credit card.
3. Use a monthly payment of $350 for the life of the credit card loan. Use the autofill feature.
4. How many months until the credit card is paid off? How much is the final payment

Part 2

5. Start with the same beginning balance of $5,000.
6. Use a monthly payment of 10% of your new balance. (In Excel, use the formula: =0.10*D2 in cell E2) Use the autofill feature to at least 72 months (6 years).
7. What do you notice?
8. Will you ever pay off this loan?

Part 3

9. Compare payment types from Part 1 (set amount each month) vs. Part 2 (percentage of your balance). What are your takeaways?
10. Generally, the minimum payment on a credit card is calculated using a particular percent of your balance (or $25, whichever is larger). Why do you think credit card companies do this?