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4.03 Using Cards Wisely

Last updated 2 months ago
27 questions
Note from the author:

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.

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.
1

Which best describes how a credit card works?

1

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

1

What is an outstanding balance?

1

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

1

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

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…
  1. 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.
  1. How much would the minimum payment be?_______
  2. 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.
  1. Why do you think credit card companies offer low minimum payments?_______
  2. 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.
  1. How does the breakdown compare with Month 1?_______
  2. 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
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
  1. 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.
  1. Click Show Calculator
  2. Remove extra payments
  3. Change Loan Term to 4 years
  4. 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?_______
1

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

2
Part III: Reflection
  1. What advice would you give Janet as she decides how to structure her loan for the trip?_______
  2. 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.”
  1. Would you agree with him?_______ Why or why not?_______
  2. 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?

1

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

1

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?

1

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