FD - Understanding Credit and Debt Lesson

Understanding Credit and Debt

Adapted from Course materials (VI.C Student Activity Sheet 8-9) for AMDM developed under the leadership of the Charles A. Dana Center, in collaboration with the Texas Association of Supervisors of Mathematics and with funding from Greater Texas Foundation.

The following is a monthly statement from a typical credit card company. Parts have been intentionally covered using three questions marks (???). Use the information in the statement to determine the balances throughout the month and then calculate the average daily balance for these purchases. Remember to balance the account after each transaction.

Answer:

7/19 to 7/22 = $2,342.51

7/23 = $ 2,413.12

7/24 to 7/27 = $2,452.12

7/18 to 8/2 = $2,477.07

8/3 to 8/17 = $2,653.40

8/18= $2,603.19

[($2,342.51 x 4) + $2,413.12 + ($2,452.12 x 4) + ($2,477.07 x6) + ($2,653.40 x 15) = $2,603.19]/31 = $78,858.25

Texas Credit

Daily Periodic Rate

The daily periodic rate describes the interest you are paying on your credit every day.

  • Use the following formula to calculate the daily periodic rate to five decimal points.
  • Use this rate to determine the finance charge to the nearest cent. (Note: APR stands for annual percentage rate.)

daily Periodic Rate

Calculate the new balance considering credits, debits, and finance charges:

Calculate the new balance considering credits, debits, and finance charges:

What percentage is the minimum payment to the new balance before interest?

What percentage is the minimum payment to the new balance before interest?

Marley has a credit card with an APR of 22.75% and a current balance of $14,677.90. If Marley uses the same percentages from the previous questions, what is her minimum payment (to the nearest cent)?

minimum payment

Using this minimum payment, how long will it take Marley to pay off the current balance? (HINT: use your TVM calculator) -approximately 42 months- Assume she does not add any more charges to her credit card. How much in interest would paying only the minimum every month cost her?

Interest Costs

The credit statement shows the APR. However, most credit card companies compound interest more often than annually. The actual interest rate you pay each year, taking into account compounding, is called the effective annual rate (EAR). It can be calculated with the following formula:

Effective Annual rate

The APR of Benny's credit card is 26.55%, compounded daily. What is his actual interest rate per year—that is, his EAR?

Effective Annual Rate 2

 

 

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