VineLesson 47 · Written for kid, teen, and little
How a Card Balance Grows
Paying only the minimum leaves a balance, and interest piles on top of it.
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
5Balance
The money you still owe on the card after you make a payment. Spend $100, pay $30, and the balance is $70.
Interest
The extra money you get charged for borrowing. Owe $100 at 2% a month and you are charged $2 that month just for waiting.
APR
Annual Percentage Rate: the yearly rate used to calculate borrowing costs. In a simplified model with monthly compounding, 24% APR means 2% a month. A $500 balance grows to about $634 after 12 months with no payments, purchases or fees; actual card calculations vary.
Minimum payment
The amount your card statement requires by its due date. The formula varies by card; paying only the minimum can leave a balance that accrues interest.
Compounding
When interest gets added on top of interest, so the pile grows faster and faster. Unpaid interest becomes part of what you owe, and then that gets charged interest too.
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.
Swipe the card — or tap.
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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