4.03 Using Cards Wisely

Last updated 7 months ago

27 questions

Note from the author:

Instructions

1

Library

4.03 Using Cards Wisely

Last updated 7 months ago

27 questions

Note from the author:

Instructions

DATA CRUNCH: What Interest Rate Do Consumers Pay on Their Credit Cards? 📷10 min
Analyze the image on the worksheet to answer the questions on this Data Crunch.

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EDPUZZLE: Credit Card Debt Explained 📷10 min
You can use credit cards for a wide variety of purchases. But, what happens if you spend more on your credit card than you can afford to repay? Watch this video and follow your teacher's directions to answer the questions either in your student activity packet or within the EdPuzzle itself.

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12

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VIDEO: 100 People Talk About Debt 📷10 min
Would you take on debt to finance a vacation? To pay for college? To buy a used car? To buy a new car? As you watch these individuals talk about how much debt they have, think about how life circumstances, values, and decision making all impact attitudes toward debt. Then answer the questions.

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1

DATA CRUNCH: What Interest Rate Do Consumers Pay on Their Credit Cards? 📷10 min
Analyze the image on the worksheet to answer the questions on this Data Crunch.

2

Between 2000 and 2024, which year had the lowest average credit card interest rate_______  and approximately what was it_______ ?

1

Between 2000 and 2024, what was the approximate difference between the highest average credit card interest rate and the lowest?_______ %

1

What does the graph suggest about the stability of credit card interest rates over a long period of time?

2

The gray bars represent periods of economic recession. What pattern, if any, can you see in how recessions affect credit card interest rates? Why do you think this is?

2

Hypothesize what this chart will look like for the next 10 year period. Explain why.

When you get a credit card bill, it might seem like you should only pay the “minimum payment due”. Find out how that could cost you and what to do instead.
Your Credit Card
Interest rate (APR): 19.9%
Minimum payment: 3% of your starting balance OR $25, whichever is higher

3

Part I:
Gen Z carries an average credit card balance of around $3,456. Using Bankrate’s Credit Card Payoff Calculator, how much would you pay in interest if you…
Paid in full before the due date?_______ 
b. Paid it off over one month (ie. one month late)?_______ 
c. Paid it off over 6 months?_______ 

12

You buy a new phone using your credit card. Including accessories, it costs $900.
How much would the minimum payment be?_______ 
Make a prediction: how long would it take you to pay off the phone if you only make the minimum payment every month?_______ 
Use Bankrate’s Credit Card Payoff Calculator to complete the chart comparing 3 payment options for the phone.
                           Min.       $50 a      3-month                           
                           PMT      month      Re-PMT
Monthly PMT_______    $50        _______
Months
to pay off      _______  _______3 months

Total  Int.      _______ _______ _______

Total Cost  _______ _______ _______  
Including Int.   

2

Fill in the blank: If you make a HIGHER monthly payment, you will pay off your debt in_______(MORE/ LESS) time and pay_______(MORE/ LESS) in total interest

3

Minimum payments tend to be quite low.
Why do you think credit card companies offer low minimum payments?_______ 
For consumers, what do you think is one PRO _______ and one CON _______ of low minimum payments?

1

What strategies can consumers use to reduce the interest they’ll pay on credit card debt?

1

These scenarios assumed a one-time balance with no additional purchases. If you also used your credit for everyday expenses, how might that affect your approach to repayment?

EDPUZZLE: Amortization 📷8 min
Home mortgages, auto loans, and student loans are all typically structured as amortized loans. While the minimum monthly payment on a credit card changes each month, the monthly payment of an installment loan is the same every month until the debt is paid off.  Watch this video and follow your teacher's directions to answer the questions either in your student activity packet or within the EdPuzzle itself.


ANALYZE: Understanding Amortization
Janet just graduated college and wants one last big adventure before work starts. A 6-week trip to South America sounds perfect, but she needs to take a loan to pay for it. Her bank offers:
Loan Amount: $3,500
Annual Interest Rate: 24%
Loan Term: 2 years

8

Part I: What Will This Trip Really Cost Janet?
Open the amortization calculator and enter the loan amount, interest rate and loan term, then click Calculate.

What is Janet’s monthly payment?_______ 
In Month 1, what portion of her payment goes towards principal_______  and interest?_______ 

Look at Janet’s payment in Month 2.
How does the breakdown compare with Month 1?_______ 
Explain why this happened._______ _______ 

By the time Janet pays off her entire loan, 
a. How much interest will she have paid?_______ 
b. How much will the trip have cost her in total?_______ 

9

1

What would be the benefit of taking a longer time to pay back your loan?

2

Part III: Reflection
What advice would you give Janet as she decides how to structure her loan for the trip?_______ 
How would you explain loan payments to a friend who’s never heard of amortization?_______ 

VIDEO: 100 People Talk About Debt 📷10 min
Would you take on debt to finance a vacation? To pay for college? To buy a used car? To buy a new car? As you watch these individuals talk about how much debt they have, think about how life circumstances, values, and decision making all impact attitudes toward debt. Then answer the questions.

4

The person at the very end of the video says he has $130,000 in student loan debt and describes it as “worth it.”
Would you agree with him?_______  Why or why not?_______ 
What are some other reasons an individual could have that much debt and still consider it worthwhile? _______ Explain your thinking._______ 

1

On the other hand, some people at the beginning of the video had absolutely no debt whatsoever. What are some possible ways they achieve a debt-free lifestyle while others do not or cannot?

1

Other than credit card usage, what are some other reasons people say they are in debt? Do their reasons for carrying debt seem valid to you? Why or why not?

1

Throughout the video, you can tell that individuals’ FEELINGS about their debt are quite different. What might cause one person to worry about the same level of debt that someone else feels quite comfortable having?

If you buy a $1000 bicycle, which credit card payoff strategy will result in your paying the LEAST total amount?

Pay the minimum monthly payment

Pay $250 per month until it’s paid off

Don’t make any payments until you have the full $1000 saved, regardless of how long that takes

Pay $100 per month for 10 months

If your credit card limit is $800 and your outstanding balance is $725, what is the largest amount you can charge on that card in the upcoming month?

0

75

725

800

Each of the following people has $5,000 in debt. Which debt is most worthwhile?

Phil, who spent mostly on GoFundMe campaigns for people he saw on social media

Tyree, who took out a loan for an old used car so he can drive to and from campus

JJ, who used a credit card to pay his daily expenses while he was out of a job

It’s impossible to tell, because we don’t know how much they each valued the spending, how much it impacted their lives, or how easily they can repay the debt

Between 2000 and 2024, which year had the lowest average credit card interest rate_______  and approximately what was it_______ ?

Between 2000 and 2024, what was the approximate difference between the highest average credit card interest rate and the lowest?_______ %

What does the graph suggest about the stability of credit card interest rates over a long period of time?

The gray bars represent periods of economic recession. What pattern, if any, can you see in how recessions affect credit card interest rates? Why do you think this is?

Hypothesize what this chart will look like for the next 10 year period. Explain why.

Which best describes how a credit card works?

The credit card company extends you a line of credit. You purchase "stuff"  and the purchase gets directly paid with funds in your checking account.

The credit card company extends you a line of credit. You then pay a small percentage of the cost of those purchases in one annual payment.

The credit card company extends you a line of credit. You purchase "stuff" and then have the choice to pay the balance in full or a minimum payment each month.

The credit card company extends you a line of credit. This is free money that you can use to purchase the "stuff" that you need.

What is the advantage of paying your credit card balance in full each month?

You will incur only a small "paid in full" fee on your next credit card statement

You pay only a small amount of interest

You avoid paying any interest and fees

You have less of your credit limit available, therefore, less temptation to spend

What is an outstanding balance?

The amount you spent in total

The amount you paid in your minimum payment

The amount you still owe after you have made your most recent payment

The amount you still have available in your line of credit

Why is it more difficult to get out of debt when only paying the minimum payment?

Your entire minimum payment goes toward principal and the interest continues to compound

Your credit limit always resets, so you have a lot of spending power each month

The majority of your minimum payment is going toward interest and finance charges and only a small amount toward the principal

The video advises you to "be a deadbeat.” What does that mean?

Pay your credit card bill in full and on time every single month, thus paying no interest or fees

Make the minimum payment on your credit card on time each month

Never open a line of credit so the credit card companies do not make any money

When you get a credit card bill, it might seem like you should only pay the “minimum payment due”. Find out how that could cost you and what to do instead.
Your Credit Card
Interest rate (APR): 19.9%
Minimum payment: 3% of your starting balance OR $25, whichever is higher

Part I:
Gen Z carries an average credit card balance of around $3,456. Using Bankrate’s Credit Card Payoff Calculator, how much would you pay in interest if you…
Paid in full before the due date?_______ 
b. Paid it off over one month (ie. one month late)?_______ 
c. Paid it off over 6 months?_______ 

You buy a new phone using your credit card. Including accessories, it costs $900.
How much would the minimum payment be?_______ 
Make a prediction: how long would it take you to pay off the phone if you only make the minimum payment every month?_______ 
Use Bankrate’s Credit Card Payoff Calculator to complete the chart comparing 3 payment options for the phone.
                           Min.       $50 a      3-month                           
                           PMT      month      Re-PMT
Monthly PMT_______    $50        _______
Months
to pay off      _______  _______3 months

Total  Int.      _______ _______ _______

Total Cost  _______ _______ _______  
Including Int.   

Fill in the blank: If you make a HIGHER monthly payment, you will pay off your debt in_______(MORE/ LESS) time and pay_______(MORE/ LESS) in total interest

Minimum payments tend to be quite low.
Why do you think credit card companies offer low minimum payments?_______ 
For consumers, what do you think is one PRO _______ and one CON _______ of low minimum payments?

What strategies can consumers use to reduce the interest they’ll pay on credit card debt?

These scenarios assumed a one-time balance with no additional purchases. If you also used your credit for everyday expenses, how might that affect your approach to repayment?

EDPUZZLE: Amortization 📷8 min
Home mortgages, auto loans, and student loans are all typically structured as amortized loans. While the minimum monthly payment on a credit card changes each month, the monthly payment of an installment loan is the same every month until the debt is paid off.  Watch this video and follow your teacher's directions to answer the questions either in your student activity packet or within the EdPuzzle itself.


ANALYZE: Understanding Amortization
Janet just graduated college and wants one last big adventure before work starts. A 6-week trip to South America sounds perfect, but she needs to take a loan to pay for it. Her bank offers:
Loan Amount: $3,500
Annual Interest Rate: 24%
Loan Term: 2 years

Part I: What Will This Trip Really Cost Janet?
Open the amortization calculator and enter the loan amount, interest rate and loan term, then click Calculate.

What is Janet’s monthly payment?_______ 
In Month 1, what portion of her payment goes towards principal_______  and interest?_______ 

Look at Janet’s payment in Month 2.
How does the breakdown compare with Month 1?_______ 
Explain why this happened._______ _______ 

By the time Janet pays off her entire loan, 
a. How much interest will she have paid?_______ 
b. How much will the trip have cost her in total?_______ 

Part II: Janet Explore Her Options
Janet received a bonus and can afford to pay extra for a month!
Click Show Calculator
Add a One-Time Extra Payment of $100 to Month 11
Click Calculate
How will one larger payment affect Janet’s amortization schedule?She will pay _______ less in interest, but it will still take _______ months to pay off. 

2. This one time payment has Janet curious. If she’d been paying an extra $100 EVERY month, what would the impact be?
Click Show Calculator
Remove the one-time extra payment
Add $100 to Monthly Extra Payment
Click Calculate
What would be the impact on Janet’s total interest paid? Janet now pays_______, which is _______  Less than her original interest payment. 

How would paying extra every month affect the number of months needed to pay off the loan? She now pays off the loan in _______ months instead of 24. 

3. Janet wants to see what happens if she extends her loan term.
Click Show Calculator
Remove extra payments
Change Loan Term to 4 years
Click Calculate
a. What is Janet's new monthly payment? _______ 
b. What is the impact on the total interest she wil pay?  Janet will pay _______ , which is _______ more than her original interest payment.  
c. In the first month, how does the interest portion of her payment compare to the principal portion?  Janes is paying more in interest than she is in principal
How does your observation in part c affect the total interest Janet will pay over the life of the loan?_______ 

What would be the benefit of taking a longer time to pay back your loan?

Part III: Reflection
What advice would you give Janet as she decides how to structure her loan for the trip?_______ 
How would you explain loan payments to a friend who’s never heard of amortization?_______ 

The person at the very end of the video says he has $130,000 in student loan debt and describes it as “worth it.”
Would you agree with him?_______  Why or why not?_______ 
What are some other reasons an individual could have that much debt and still consider it worthwhile? _______ Explain your thinking._______ 

On the other hand, some people at the beginning of the video had absolutely no debt whatsoever. What are some possible ways they achieve a debt-free lifestyle while others do not or cannot?

Other than credit card usage, what are some other reasons people say they are in debt? Do their reasons for carrying debt seem valid to you? Why or why not?

Throughout the video, you can tell that individuals’ FEELINGS about their debt are quite different. What might cause one person to worry about the same level of debt that someone else feels quite comfortable having?

If you buy a $1000 bicycle, which credit card payoff strategy will result in your paying the LEAST total amount?

Pay the minimum monthly payment

Pay $250 per month until it’s paid off

Don’t make any payments until you have the full $1000 saved, regardless of how long that takes

Pay $100 per month for 10 months

If your credit card limit is $800 and your outstanding balance is $725, what is the largest amount you can charge on that card in the upcoming month?

0

75

725

800

Each of the following people has $5,000 in debt. Which debt is most worthwhile?

Phil, who spent mostly on GoFundMe campaigns for people he saw on social media

Tyree, who took out a loan for an old used car so he can drive to and from campus

JJ, who used a credit card to pay his daily expenses while he was out of a job

It’s impossible to tell, because we don’t know how much they each valued the spending, how much it impacted their lives, or how easily they can repay the debt

Which best describes how a credit card works?

The credit card company extends you a line of credit. You purchase "stuff"  and the purchase gets directly paid with funds in your checking account.

The credit card company extends you a line of credit. You then pay a small percentage of the cost of those purchases in one annual payment.

The credit card company extends you a line of credit. You purchase "stuff" and then have the choice to pay the balance in full or a minimum payment each month.

The credit card company extends you a line of credit. This is free money that you can use to purchase the "stuff" that you need.

What is the advantage of paying your credit card balance in full each month?

You will incur only a small "paid in full" fee on your next credit card statement

You pay only a small amount of interest

You avoid paying any interest and fees

You have less of your credit limit available, therefore, less temptation to spend

What is an outstanding balance?

The amount you spent in total

The amount you paid in your minimum payment

The amount you still owe after you have made your most recent payment

The amount you still have available in your line of credit

Why is it more difficult to get out of debt when only paying the minimum payment?

Your entire minimum payment goes toward principal and the interest continues to compound

Your credit limit always resets, so you have a lot of spending power each month

The majority of your minimum payment is going toward interest and finance charges and only a small amount toward the principal

The video advises you to "be a deadbeat.” What does that mean?

Pay your credit card bill in full and on time every single month, thus paying no interest or fees

Make the minimum payment on your credit card on time each month

Never open a line of credit so the credit card companies do not make any money

Part II: Janet Explore Her Options
Janet received a bonus and can afford to pay extra for a month!
Click Show Calculator
Add a One-Time Extra Payment of $100 to Month 11
Click Calculate
How will one larger payment affect Janet’s amortization schedule?She will pay _______ less in interest, but it will still take _______ months to pay off. 

2. This one time payment has Janet curious. If she’d been paying an extra $100 EVERY month, what would the impact be?
Click Show Calculator
Remove the one-time extra payment
Add $100 to Monthly Extra Payment
Click Calculate
What would be the impact on Janet’s total interest paid? Janet now pays_______, which is _______  Less than her original interest payment. 

How would paying extra every month affect the number of months needed to pay off the loan? She now pays off the loan in _______ months instead of 24. 

3. Janet wants to see what happens if she extends her loan term.
Click Show Calculator
Remove extra payments
Change Loan Term to 4 years
Click Calculate
a. What is Janet's new monthly payment? _______ 
b. What is the impact on the total interest she wil pay?  Janet will pay _______ , which is _______ more than her original interest payment.  
c. In the first month, how does the interest portion of her payment compare to the principal portion?  Janes is paying more in interest than she is in principal
How does your observation in part c affect the total interest Janet will pay over the life of the loan?_______ 