Question

What happens if you don't pay the balance off by the end of the month after buying $230 in clothes and charging it to your credit card?

Answer 1

If you don't pay the balance off by the end of the month after buying $230 in clothes and charging it to your credit card, you may incur interest charges on the unpaid balance.

Step-by-step explanation:

When you make a purchase using a credit card, you are essentially borrowing money from the credit card issuer. If you don't pay off the entire balance by the end of the billing cycle, the credit card company will apply an interest rate to the remaining balance. The interest is calculated based on the annual percentage rate (APR) and the average daily balance.

In this scenario, let's say the APR is 18%. To calculate the interest for one month, you would use the formula:

`\[ \text{Interest} = \left( \frac{\text{APR}}{12} \right) * \text{Average Daily Balance} \]`

If you spent $230 on clothes, and let's assume you made no other transactions and started with a zero balance, the average daily balance would be $230/2 = $115. Using the formula, the interest for one month would be:

`\[ \text{Interest} = \left( (0.18)/(12) \right) * 115 = $1.725 \]`

Therefore, if you don't pay off the $230 by the end of the month, you would incur an interest charge of approximately $1.73. It's important to be aware of the terms and conditions of your credit card to avoid unnecessary interest costs.