Which of the following are true if you pay only the minimum amount each month towards your credit card bill?
Answers
1) You will be charged interest on your remaining balance.
2) Your Annual Percentage Rate will increase.
3) You may be in debt for a long time.
4) Both A and B are true.
Here answer (4) is most appropriate, i.e. both A and B are true.
Whenever you pay only the minimum amount due on your credit card, interest is charged on the remaining balance carried forward to the next month. Thus, you accrue more and more interest if you keep paying the minimum amount.
The Annual Percentage Rate (APR) usually doesn't depend on whether you pay only the minimum amount, but some card issuers charge a penalty APR if you constantly pay only the minimum amount. Hence, this option can also be considered to be correct.
Therefore, I have regarded both A and B to be correct. Do correct me if I am mistaken in this regard.
The question is incomplete.
However,
When only minimum payment is made on your credit card, you are committing to paying more in interest later.
If the minimum amount is paid towards your balance each month, paying your debt will take much longer.
As only the minimum amount is due, you will be charged interest.
Interest rates start from the moment of purchase till the debt is settled.
Credit card companies encourage you to pay more interest every month.
Hence, the most likely outcome of making only on-time minimum payments to a credit card with a balance for an entire year would be your payments will have gone mostly towards paying interest and you will still owe the majority of the balance that you had from a year ago.
The answer is Your payments will have gone mostly towards paying interest and you will still owe the majority of the balance that you had from a year ago.
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