Answer: $935.95

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.]

Click here for the ready-to-go slides for this Question of the Day that you can use in your classroom.

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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Help your students avoid those high-interest loans. Let them play loan shark with our Shady Sam game (in the NGPF Arcade) and they will quickly learn the tricks of the trade. 

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Attend NGPF Professional Developments and earn Academy Credits on your own time! Check out NGPF On-Demand modules!

About the Author

Mason Butts

After graduating from UCLA with a Master's in Education, Mason spent 5 years as a science educator in a South Los Angeles public high school. He is committed to supporting the holistic growth of all students and empowering them to live a life of relational, academic, and financial success. Now settled in the Bay Area, Mason enjoys facilitating professional developments and partnering with educators as they prepare students for a bright financial future. When Mason is not building curriculum or planning a training, he can be found cycling, trying new foods, and exploring the outdoors.