Unit 3 · Level 1 · Debt, honestly
The minimum payment trap
You put €2,000 on a card that charges 1.67% a month, the rate sitting behind a 20% headline. The minimum payment is 2% of the balance, with a €20 floor. Month one: interest is 1.67% of €2,000, which is €33.33. The minimum is 2% of €2,000, which is €40. So you send €40 and the debt falls by €6.67. Hold that number in your head for the next screen.
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What you get asked
From that example: you pay the €40 minimum and €33.33 of it is interest. How many euros of your payment actually reduce what you owe?
€6.67. Eighty three cents in every euro went to the lender and vanished. The minimum payment is designed to be survivable, not to clear the debt.
If you pay only that minimum every month on the €2,000 balance, how does it end?
Roughly 26 years and about €6,000 of interest, so you repay over €8,000 on a €2,000 balance. The interest alone costs three times the original purchase.
The minimum shrinks as the balance shrinks, so the payment gets ___ exactly when you most need it to stay put.
That is the trap in one line. A percentage-based minimum falls every month, so the gap between your payment and the interest keeps closing and progress crawls.
Same €2,000 and the same 1.67% a month, but you fix your payment at €100 instead of taking the minimum. Roughly how many months until the balance hits zero?
About 25 months. You pay around €2,450 in total, so €450 of interest instead of €6,000. Same debt, same rate, one different habit.
Which single change does the most to break the minimum payment loop?
Freeze the amount. If you keep paying €100 while the balance falls, every euro of the shrinking interest bill moves over to principal, and the debt collapses instead of drifting. 🐜
The rest of this unit
Compounding runs in both directions, and on a credit card it runs at you.