Mrs. Katz had an initial balance of $1000, an annual percentage rate (APR) of 20%, and required minimum payments of 2%. Help Mrs. Katz calculate her unpaid balance, finance charge, and minimum payments for the next six months.

Month
Unpaid Balance

(Balance – Payment)
Finance Charge

(Unpaid Balance x APR/12 expressed as a decimal)
Minimum Payment

(Unpaid Balance + Finance Charge) x 2/100
New Balance

(Unpaid Balance + Finance Charge – Payment)

1

$1000

1000x0.20=200/12=
17
$1000+17=1017
1017x0.02=20.4
1017-20.34=$996.66

2

$996.66

996.66x.20=199.33/12=16.61
$996.66+16.61=1013.27
1013.27x0.02=20.26
1013.27-20.26=$993.01

3

$993.01

993.01x.20=198.60/12=16.55
$993.01+16.55=1009.56
1009.56x0.02=20.19
1009.56-20.19=$989.34

4

$989.34

989.34x20=194.86/12=16.23
$989.34+16.23=1005.57
1005.57x0.02=20.11
1005.57-20.11=$985.46

5
$985.46

985.46x20=197.09/12=16.42
$985.46+16.42=1001.88
1001.88x0.02=20.03
1001.88-20.03=$979.85

6
$979.85

979.85x20=195.97/12=16.33
$979.85+16.33=996.18
996.18x0.02=19.92
996.18-19.92=$976.26

Part II
Did you know? By paying only the minimum amount due on a credit card, it takes years to pay off initial expenses and people end up paying almost double the cost of the items purchased. Take a moment to think about Mrs. Katz’s options. Use what you have learned to answer the following questions.

question: Mrs. Katz could have saved money for her new computer rather than buying it on a credit card. What would have been the difference in the amount of time to pay for the computer and the amount of money ultimately spent?