How a Card Balance Grows
Paying only the minimum leaves a balance, and interest piles on top of it.
The idea
A credit card is borrowed money. If you pay the full statement balance every month, purchases usually cost you nothing extra. If you pay less than the full amount, the leftover part is a balance, and the card charges interest on it, often at an APR much higher than savings accounts pay. Next month, interest gets charged on the balance including the interest you already owe, so the debt grows on itself. That is the same compounding that helps investors, just pointed at you. 💳
Words to know
- Balance
- The money you still owe on the card after you make a payment.
- Interest
- The extra money you get charged for borrowing.
- APR
- Annual Percentage Rate: the yearly price tag on borrowing money.
- Minimum payment
- The smallest amount you can pay to avoid a late fee, which leaves the rest owed.
- Compounding
- When interest gets added on top of interest, so the pile grows faster and faster.
Try it — no account needed
A credit card is not your money — it is the bank's money, lent to you. Swipe true or false.
A credit card is money the bank lends you, and you have to pay it back.
In the full lesson
- 1True or false
- 2Work out the number
- 3Make the call
Vine has 107 lessons like this one, each written three ways so a 7-year-old and a 17-year-old both get a version that fits.
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