Simple Interest vs. Compound Interest
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Mr. Glennon presented a document on budgeting that warns about the dangers of credit card debt, especially compound interest. It explains that while credit cards may seem like a way to get things now and pay later, the interest charges can quickly accumulate over time. Compound interest works by charging interest on both the principal amount borrowed and on previously accumulated interest, causing balances to grow rapidly. The document urges careful consideration of interest rates and repayment plans before taking on credit card debt.
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Simple Interest vs. Compound Interest
- 1. Bu dget ing Presente d By Mr. G lennon
- 2. tulations! Congra You finall y have a job! Time to buy stuff!
- 3. New T V! How abo ut that ch oice HDT V Only $2000.00…not much when you have a job… …. right???
- 4. ee mone y…? Fr You’re a l iJle short o n cash How about a CREDIT CARD? NOW…Pay LATER! Buy
- 5. x actly f ree Not e Not quite free…bu sUll a gre t at deal! You’ll have to pay later, but you get the HDTV NOW!
- 6. w it works Ho Put $200 0.00 on t he card… …pay $2000.00 back later. R ight???
- 7. not so much Yeah… Put $200 0.00 on t he card… ack $2000.0 0 (If you Pay b the ENTIRE $2000.00 pay b ack when t he first bill comes)
- 8. interest $2000.00 % + Principal Interest = What you PAY
- 9. interest IF YOU PAY $2000.00 + IT OFF 10 % Interest IMMEDIATELY! = $2200.00
- 10. interest NO BIG DEAL $2000.00 Only $200.00 + extra 10 % Interest …and I sUll get = the TV now! $2200.00
- 11. NO PE! Meet your ne w friend! COMPOUND INTEREST This is Compound Interest. He is horrible and he hates you.
- 12. 2 kinds of inte rest SIMPLE INTEREST 1 Pay a percent of what you bor row. Usually on a schedule (10% for 2 years)
- 13. 2 kinds of inte rest COMPOUND INTEREST 2 Pay a percent of what you bor row but MORE int erest compounds o n top of the princip al AND interest you owe.
- 14. ex ample Simple interest $2000.00 The amount y ou have to pay b + ack is $2200, no 10 % Interest maJer how l ong = it takes. $2200.00
- 15. ex ample The amount y ou have to pay b Compound recalculated e ack is interest ach billing period . It is $2000.00 a percent of t he + amount you borrowed AN 10 % Interest D the original amou = nt of $2200.00 interest. + 2.5% + 2.5% + 2.5%