Prevolio
Credit-Card Debt Lab

Interactive economics practical

Credit-Card Debt Lab

See compound interest work in reverse. Compare minimum payments with fixed repayments, test the effect of APR and new spending, and build an evidence-based escape plan.

Open the simulatorStart the investigation

Your predictions, evidence and answers are saved in this browser as you work.

Class time
50-60 minutes
Preparation
Open this page
Student format
Solo or pairs
Level
Introductory

Lesson overview

Everything needed for one complete practical class

Students learn the model, make predictions, run controlled comparisons, record evidence, explain the mechanism, and finish with an exit ticket.

Learning objectives

  • Convert APR into an approximate monthly interest rate.
  • Separate a payment into interest, new spending, and principal reduction.
  • Explain why percentage-based minimum payments decline over time.
  • Identify when a balance shrinks, stalls, or grows.
  • Use simulation evidence to recommend a repayment strategy.

Student success criteria

  • I can explain APR without calling it a monthly rate.
  • I can use the first-month breakdown to track principal.
  • I change one variable at a time in a fair comparison.
  • I support my conclusion with at least three saved trials.
  • I can explain why stopping new spending matters.

Theory in six minutes

Four ideas explain the whole simulation

Read these before changing the controls. The formulas below are the exact rules used by this classroom model.

APR

APR is the annual percentage rate. This model divides it by 12 to estimate the rate charged each month.

Compound interest

Unpaid interest joins the balance. Next month, interest is charged on that larger amount.

Minimum payment

The required payment is a percentage of the statement balance or $25, whichever is greater. It shrinks with the debt.

Principal

Principal is the debt itself. Only the part of a payment left after interest and new spending reduces it.

Monthly rate = APR / 12Interest = opening balance × monthly rateStatement balance = opening balance + interest + new spendingPrincipal reduction = payment - interest - new spending

Key test: if payment is less than interest plus new spending, the debt grows. If it is equal, the debt stalls. If it is greater, the debt shrinks.

Interactive model

Test the debt, not your intuition

Use the presets or adjust one input at a time. The red line always shows minimum-only repayment; the green line shows your fixed-payment plan.

Monthly rate: 2.00%

Required payment is at least $25.

The required minimum still applies. Enter $0 to follow minimum-only repayment.

Simplified classroom model

Interest is charged monthly on the opening balance. Fees, grace periods, daily compounding, promotional rates, and missed-payment penalties are excluded.

Minimum-only payoff
More than 50 years
Minimum-only interest
$21,341*
Your plan payoff
26 months
Your plan interest
$580

* Interest accumulated during the first 50 years; the debt is still not cleared.

Debt shrinks in month 1: $100 paid - $40 interest - $0 new spending = $60 off principal.

Chart time horizon

Balance over time

Balance at the end of each month; month 0 is the starting balance.

After 10 years, minimum-only balance is $1,906 and your plan balance is $0.

Total interest comparison

Minimum only
$21,341
Your plan
$580

Payment schedule

Trace where the money goes.

Your plan
MonthOpeningInterestNew spendingPaymentPrincipal changeClosing
1$2,000$40$0$100+$60$1,940
2$1,940$39$0$100+$61$1,879
3$1,879$38$0$100+$62$1,816
4$1,816$36$0$100+$64$1,753
5$1,753$35$0$100+$65$1,688
6$1,688$34$0$100+$66$1,622
7$1,622$32$0$100+$68$1,554
8$1,554$31$0$100+$69$1,485
9$1,485$30$0$100+$70$1,415
10$1,415$28$0$100+$72$1,343
11$1,343$27$0$100+$73$1,270
12$1,270$25$0$100+$75$1,195
24$269$5$0$100+$95$175
26$78$2$0$80+$78$0

Practical investigation

Predict, test, record, explain

Work through the four trials in order. Before loading each scenario, write a prediction. Save each result to build your evidence set.

Investigation 1

Measure the minimum-payment trap

Use a $2,000 balance, 24% APR, a 2% minimum, no fixed payment, and no new spending. Predict the payoff time and interest cost.

Then select Save current trial.

Investigation 2

Hold everything constant; pay $100

Change only the fixed payment. Predict whether doubling the first minimum payment will merely halve the payoff time or do something more dramatic.

Investigation 3

Raise the payment to $150

Change only the fixed payment again. Estimate the additional months and interest saved compared with $100.

Investigation 4

Keep paying $100, but add $60 of new spending

Predict the balance direction. Use the first-month equation to justify your answer before loading the scenario.

Conclusion

Make a recommendation from evidence

Check understanding

Can you explain the mechanism?

1. At 24% APR, the approximate monthly rate is:
2. Which situation makes the debt grow?
3. Why is a fixed payment usually faster than a percentage minimum?

Exit ticket

Answer before leaving

Teacher notes

A ready-to-run lesson

No separate slides are required. Project the page for discussion, then let students work individually or in pairs on the same page.

Suggested 55-minute sequence

  1. 0-5 minAsk: "If the minimum is affordable, is the debt under control?" Collect a show of hands without correcting answers.
  2. 5-11 minRead the four theory ideas and calculate the first month's $40 interest together.
  3. 11-18 minDemonstrate the simulator and compare minimum-only with $100.
  4. 18-38 minStudents complete the four investigations and save evidence.
  5. 38-47 minPairs compare conclusions. Ask which variable produced the strongest effect and why.
  6. 47-55 minComplete the knowledge check and exit ticket. Revisit the opening vote.

Expected benchmark results

TrialPayoffInterestObservation
2% minimumMore than 50 years$21,341*Minimum almost equals interest.
$100 fixed26 months$580Extra payment attacks principal.
$150 fixed16 months$350A further nonlinear saving.
$100 + $60 spendingMore than 50 years$24,000*$40 interest + $60 spending = $100, so the balance never moves.

* Interest accumulated during the first 50 years; the debt is still not cleared. Every figure in this table is computed by the simulation above.

Questions to ask while circulating
  • Which variables did you hold constant, and why does that make the comparison fair?
  • How much of the first payment reduces principal?
  • Why does the red line flatten instead of falling at a steady rate?
  • Can a borrower make every required payment and still see the balance grow?
Common misconceptions and responses

"APR is charged every month." APR is annual. In this model, 24% APR becomes approximately 2% per month.

"The whole payment reduces debt." Interest and new spending are covered first; only the remainder reduces principal.

"Paying twice as much means paying for half as long." It can save more than half the time because faster principal reduction also prevents future interest.

"Minimum payment means safe payment." It keeps the account current, but it is not designed to minimize the borrower's total cost.

Model assumptions and limitations

The model uses APR/12, monthly compounding, a percentage minimum with a $25 floor, and constant monthly spending. Real cards may use daily average balances, fees, different minimum formulas, grace periods, promotional rates, and penalty APRs. The model is for understanding mechanisms, not predicting a particular card statement.

Answers to the knowledge check and exit ticket

Knowledge check: 1-B, 2-C, 3-A.

Exit ticket 1: A percentage minimum falls with the balance, leaving little for principal and allowing interest to accumulate for years.

Exit ticket 2: Principal does not change because the $100 payment exactly equals $40 interest plus $60 new spending.

Exit ticket 3: Any valid limitation, such as monthly rather than daily interest, no fees, or a simplified minimum formula.