PROFESSIONAL ADVICE 10 Consider Jenna who is 22 and owes $3000 on her credit card. The current interest rate is 1.6% per month. If Jenna makes no additional purchases on her credit card and pays $60 per month off her debt, Jenna will be 30 when she makes her last payment and she will have paid more than $3000 in interest. If Jenna's credit card provider charges an annual fee of $59 to her account each December, after 8 years of payments of $60 per month, Jenna, at age 30, will still owe more than $1000 and she will have paid more than $3600 in interest. As we can see, minimum payments barely cover the ongoing interest commit- ment. Making minimum payments leaves the individual exposed to very high interest rates. Individuals need a plan which discharges credit card debt as quickly as possible. This might include: making payments greater than the minimum consolidating credit card debt with other debt which attracts a lower rate of interest . switching to a credit card which offers a lower rate of interest, including taking advantage of cards that offer a low honeymoon rate although clients must be clear on the interest rate consequences once the honeymoon period is over. QUESTIONS Assume that Jenna has just been told by her credit card provider that the monthly rate of interest has increased to 1.7%. She is determined to pay off her debt as quickly as she can and believes she can afford to pay $100 per month What is the effective annual rate of interest on Jenna's credit card? How long will it take Jenna to pay off the balance on the card? 3 By the time the debt is paid off, how much interest will Jenna have paid? 1 2