Budgets, credit cards and loans

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Learn it A budget lists income and expenses for a period (often a month). Income − expenses is what you can save; if it is negative, you are overspending. A credit card charges interest on any balance you don't pay off; a yearly rate is shared across 12 months (monthly rate ≈ yearly rate ÷ 12). Paying only the minimum keeps most of the debt, so the interest keeps adding up.

Example: A credit card charges 19.2% per year. You owe $500 and pay nothing this month. How much interest is added?

Monthly rate = 19.2% ÷ 12 = 1.6%.
Interest = 500 × 0.016 = $8.00.
Next month you owe $508, and interest is charged on that larger amount.

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