1. 5)  If you were the person that made $2500 each month, would you purchase one of the homes?

2. 6)  What other factors affect your decision?

Part 2: Credit Card

Another type of personal loan is a credit card. A financial institution allows you to “charge” a purchase to your account, and you are required to pay the financial institution at a later time.

As with other loans, credit cards charge interest. Interest rates can range from 3% – 22%. When you are paying for debt on a credit card, the financial institution will require a minimum balance be paid each month. The higher the interest rate that is charged on the credit card, the larger the minimum payment will be.

Questions about Credit Cards

A 60% sale is offered at your favorite store, and you think the items are priced so well that you charge $1200 in merchandise to your credit card.

Assume there are two different interest rates for a credit card, 13.6% and 22%.

Use a credit card payment calculator to determine how much you would pay for your items if you were to pay the minimum payment of $15 each month for the lower interest rate of 13.6% and a minimum payment of $25 for the higher interest rate of 22%.

For each of the interest rates:

1. 1)  How many months will it take to pay off the $1200 “deal”?

2. 2)  What is the amount that you will actually have to pay for the merchandise if you pay the

   minimum amount?

3. 3)  Do you think it is worth charging items that are on sale if you are only going to make

   minimum payments to the credit card?

4. 4)  What are some reasons the interest rates on credit cards vary?

5. 5)  What are your opinions on having and using credit cards for your purchases?