Scott Stebbings

Math 1050
Ruth Trygstad
3/15/24

The Credit Card Lab: A Real-World Application of Mathematical Principles

The Credit Card Lab was a practical exercise designed to simulate a scenario many individuals
face: managing credit card debt. The lab guided us through the process of understanding the
implications of interest rates and making minimum payments on a significant credit card
balance. This exercise involved various mathematical techniques, including calculating
percentages, understanding and applying payment formulas, and using logarithms to solve for
variables within those formulas. Through these methods, we explored the financial
consequences of debt and the strategies for effectively managing it.

This project unequivocally demonstrates how math can be applied to the real world. The results
are crucial as they offer a tangible reference point for understanding the often abstract concept
of credit card interest. By calculating exact figures, such as monthly interest, total amount paid,
and duration of debt repayment, individuals can grasp the long-term impact of their financial
habits. This awareness is beneficial because it encourages more informed decisions about
spending, debt repayment, and overall financial management.

An analogous application of this type of analysis can be seen in mortgage planning. Just like
clearing credit card debt, planning a mortgage requires an understanding of interest rates,
repayment plans, and the overall cost involved. Homebuyers benefit from this analysis as it
helps them choose a mortgage plan that is financially manageable and aligns with their
long-term financial goals. It allows them to ascertain the total cost of the mortgage, including
how much they are paying towards interest.

As a financial adviser, being proficient in explaining the details of this project to clients is
paramount. It's important because clients entrust financial advisers with guiding them towards
financial stability and growth. Understanding the nuances of credit interest rates, the long-term
implications of various repayment strategies, and being able to communicate this effectively
helps clients make informed decisions that could save them a significant amount of money in
the long term. It builds client trust and confidence in the adviser’s capabilities.

This assignment has reinforced my view on the usefulness of math. Often, mathematics is
perceived as a school subject with little to no relation to everyday life. However, this project
highlights that the principles taught in math classes are the underpinnings of critical life skills,
especially financial literacy. Applying math to manage and strategize debt repayment is an
incredibly practical use of mathematical knowledge, one that substantiates its importance
beyond the classroom.
Regarding credit card debt, the best plan for repayment is to pay more than the minimum
payment each month. This approach reduces the principal faster, thereby decreasing the
interest accrued and the overall repayment time. The worst approach is making only the
minimum payment, which lengthens the repayment period and significantly increases the total
interest paid. If one cannot afford more substantial payments, it’s advisable to still pay a little
over the minimum amount and consult a financial advisor for strategies tailored to their financial
situation.

Two key learnings for the average consumer from this assignment are the cost of making only
the minimum payments on a credit card balance and the benefits of a strategic approach to debt
repayment. Consumers learn that prolonging the repayment of a credit card balance can lead to
paying nearly double the original amount borrowed when only minimum payments are made.
Additionally, they learn the value of being proactive about debt repayment, which can save a
considerable amount of money and financial stress in the long term. This assignment serves as
a cautionary tale about the use of credit cards and the importance of financial literacy.