This
week my online students were assigned an activity intended to demonstrate the power
of compounding interest.
Few had difficulty
arriving at accurate answers for two investment scenarios. But
they did have difficulty with calculating how long it would take to pay off
credit card debt.
Here’s
the challenge:
Newlyweds Chad and Kate want to rid themselves of $6,500 of credit card debt. The bank charges 18% annual interest and the minimum payment is 2% of the monthly balance.
Newlyweds Chad and Kate want to rid themselves of $6,500 of credit card debt. The bank charges 18% annual interest and the minimum payment is 2% of the monthly balance.
1) How long will it take them to pay off
the account if paying only the minimum, and
2) How much will they have paid in
interest?
What
are your answers?
