You might be able to explain to a child how credit card debt accumulates if you only make the minimum monthly payment-but when the percentage starts compounding, I usually collapse muttering over my calculator.
Here’s a great website that makes it easy to show your child what happens when you make the minimum payment. Let’s say he “has” to have a new laptop, but he doesn’t actually have the $2,000 it costs for the nice one that weighs only ounces and looks really sleek.
Go to bankrate.com’s debt calculator and plug in $2,000. Before you press “calculate” ask your son how long it will take to pay off the computer if he just pays the minimum and how much that computer will really cost.
For a credit card with 20% interest rate and paying the minimum $53 a month, it would take over 15 years to pay off the computer and you’d pay a total of $4,764 dollars for a computer that would be obsolete long before the buyer was done paying for it.
It’s a great exercise to do with your teen before he or she gets a card and all its temptations.