Oct 24, 2021

### Question of the Day: How much will Americans who only make minimum credit card payments end up paying in interest charges this year?

We multiplied the average credit card balance of \$5,897 by the average credit card APR of 16.43%. Assuming they don't rack up any more debt, consumers who make 2% minimum payments every month would pay \$935.95 in credit card interest that year.

Questions:

• Why do you think that so many Americans have credit card debt, meaning they don’t pay the full balance on their credit card statements every month?
• How you can avoid getting into credit card debt that carries over from month to month?
• Imagine using your credit card to buy \$100 of clothes. If you weren’t able to pay off that purchase for a year and your credit card had a 20% interest rate, how much would you pay in interest alone? [You would also pay late fees if you made no payments.]

Behind the numbers (Motley Fool):

The math behind credit card interest costs

"We used the following data to calculate how much credit card interest costs Americans:

• The average credit card balance in 2020 is \$5,897, according to average household debt numbers.
• The average credit card APR is 16.43% as of August 2020, according to the Federal Reserve.

We could just multiply \$5,897 by 16.43%. With that method, annual interest charges total \$968.88.

However, your credit card balance changes as you make payments. For a more accurate result, we need to factor in how the balance decreases each month.

Minimum payment amounts vary by the card issuer, but they're usually between 1% and 3% of the balance (with a \$25 or \$35 minimum). We'll split the difference and go with a minimum payment of 2% every month. On a \$5,897 balance, that's a payment of about \$118 to start.

Assuming they don't rack up any more debt, consumers who make 2% minimum payments every month would pay \$935.95 in credit card interest that year."

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