Demo Dozen

REPAYING CREDIT CARD DEBT:

What Is an Appropriate Repayment Plan?

 

What happens when you receive your monthly credit card statement and discover that you've run up a large debt that you can't possibly pay off that month?  Mercifully (?), your credit card company is forgiving in that it gives you the opportunity to make a "minimum payment" rather than pay back the entire amount.

 

What's their thinking?  Are they simply looking out for your best interests?  Or, perhaps, is there something that they know and you don't?  Here is an opportunity to examine the logic of their thinking - and what it means to you.

 

In this simulation, your monthly credit card bill has just arrived!  It advises you how much you owe (did I really spend that much??), then offers you the option of paying the minimum due.  What will you do?

 

Should you pay the minimum due (based on 2.1% of what you owe), pay the minimum PLUS an additional monthly payment, or ignore the minimum and pay a constant set monthly amount equal to or larger than that initial minimum due?

 

By allowing you to simulate the implications of different decisions, we hope to spare you from results similar to those illustrated below from one of our model runs where we plot the cumulative amount paid over time on an intial $3000 debt.: