Lesson 8 of 25 · 7 min
Paying the minimum while still charging
New charges against a minimum sized off the old balance can raise the line instead of retiring it.
Lesson 7's 215-month clock assumed no new charges. Add charges and the minimum, still sized off the balance that already exists, can lose to the new draw. The line rises. The formula has not changed. The inflows have.
Start at $4,280 on Wick & Pell Cards at 21.99 percent. Each month: interest is the balance times 0.2199/12; the minimum is the greater of $25 and 1 percent of the balance plus that interest; new charges of $180 post; the new balance is old balance plus interest plus $180 minus the minimum. Because the minimum is 1 percent plus interest, the interest cancels, and the balance update is 0.99 times the old balance plus $180 — as long as that minimum stays above $25, which it does on this path.
Rounded to cents each cycle, month 6 is $5,082.89. The starting $4,280 is behind. Six minima were paid. Six times $180 were added. The minima were sized off balances that did not include the new $180 until after the payment was computed, and even once the $180 is inside the next month's 1 percent, 1 percent of $180 is $1.80 against $180 of new principal. Track 9 lesson 17 is a second call inside an open call: drawing more while a test is already running. New charges against a minimum are that second draw, on a card.
A minimum sized off the old balance retires a slice of the old balance. It does not retire a new charge that arrived in the same month.
Key terms
- New charges
- Purchases posted in the same month as a minimum payment. They are extra principal, not covered by last month's 1 percent.
- Balance update
- Old balance + interest + new charges − minimum. On this formula, 0.99 × old balance + new charges.
- Rising line
- A carried balance that is higher after a stretch of minima and new charges than it was at the start.
Worked example
Six months of $180 against the 1 percent formula
Wick & Pell Cards. Start $4,280 at 21.99 percent. Each month add $180 and pay max($25, 1 percent of balance + interest). Cents rounded each cycle.
- Month 1 end
- $4,417.20
- Month 2 end
- $4,553.03
- Month 3 end
- $4,687.50
- Month 4 end
- $4,820.62
- Month 5 end
- $4,952.41
- Month 6 end
- $5,082.89
Interest $78.43, minimum $121.23, plus $180.
Interest $80.95, minimum $125.12.
Interest $83.43, minimum $128.96.
Interest $85.90, minimum $132.78.
Interest $88.34, minimum $136.55.
Interest $90.75, minimum $140.27. Above $4,280.
Six minima paid, six $180 charges added, balance $5,082.89. The line rose because the minimum is a slice of the old balance, not of the new charges.
Check yourself
Start at $2,640 at 21.99 percent. Each month add $120 and pay the 1 percent-plus-interest minimum, rounding to cents. What is the balance at the end of month 6?
New charges against a minimum are the everyday version of drawing more while a call is open, which Track 9 lesson 17 treats as a second call inside the first. Open The second call inside the first →
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Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.