Math for Work & Everyday Life (MEL3E) · Saving, Investing, and Borrowing

Cost of carrying a credit card balance

Find the interest that builds up on an unpaid credit card balance compounded monthly. Unlimited questions, five difficulty levels, and a full worked solution every time, included free with weekly lessons.

Practice this skill Curriculum: MEL3E-BR1

Try one

Nadia has a credit card balance of $900.00 at 16% interest per year. If Nadia makes no payments, how much interest will have built up after 2 months? (Interest is charged monthly on the growing balance.)

A = P(1 + i)n

Answer: $24.16

See one solved, step by step

Chantal has a credit card balance of $500.00 at 16% interest per year. If Chantal makes no payments, how much interest will have built up after 3 months? (Interest is charged monthly on the growing balance.)

A = P(1 + i)n
📘 Worked solution
1Monthly rate: 16% / 12 = 1.3333% per monthCredit card interest is charged monthly, so split the annual rate across 12 months.
2Balance after 3 months: $500.00(1 + 16%/12)3 = $520.27Each month, interest is charged on the balance so far - the debt compounds just like an investment does. Keeping the monthly rate as an exact fraction (rather than a rounded decimal) avoids compounding rounding error.
3$520.27 - $500.00 = $20.27The interest charged is the growth in the balance since nothing was paid down.

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