Credit & Debt Basics

Grade 10 · financial_literacy · 42 practice problems · read aloud

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Credit & Debt Basics

What Are Credit & Debt?

Credit is the ability to borrow money or access goods/services now, with the promise to pay later. Debt is the money you owe as a result of borrowing. Understanding this is crucial for managing your personal finances, from buying a car 🚗 to paying for college.

Key Concepts

  • Principal: The original amount of money borrowed.
  • Interest: The cost of borrowing money, a percentage of the principal.
  • Term: The length of time you have to repay the loan.
  • Minimum Payment: The smallest amount you must pay each month.

Step-by-Step: Calculating Simple Interest

  1. Identify the principal (P), interest rate (r) as a decimal, and time in years (t).
  2. Use the formula: Interest (I) = P × r × t
  3. Calculate the total amount to be repaid: Total = P + I

Examples

Example 1: Simple Loan

You borrow $1,000 at a 5% annual simple interest rate for 3 years.

  1. P = 1000, r = 0.05, t = 3
  2. I = 1000 × 0.05 × 3 = $150
  3. Total Repayment = 1000 + 150 = $1,150

Example 2: Credit Card Debt

You have a $500 credit card balance with 18% annual interest. You only make the $25 minimum payment.

  • Monthly Interest = 500 × (0.18/12) = $7.50
  • If you pay $25, only $17.50 goes to the principal.
  • This keeps you in debt longer and costs more in total interest!

Common Mistakes ⚠️

  • Ignoring the Interest Rate: Focusing only on the monthly payment, not the total cost of the loan.
  • Making Only Minimum Payments: This drastically increases the total interest paid over time.
  • Confusing Simple & Compound Interest: Most real-world debt (like credit cards) uses compound interest, which grows faster.

Tips & Tricks

  • The 20-30 Rule: Keep your debt payments below 20-30% of your income.
  • Read the Fine Print: Always know the APR (Annual Percentage Rate) and fees.
  • Pay More Than the Minimum: Even a small extra payment each month can save you a lot of money.

How to Practice

Use online loan calculators. Create a budget for a hypothetical car loan. Compare the total cost of a $1,000 loan at different interest rates (e.g., 5% vs. 15%) to see the dramatic difference.

Practice problems

6 of the 42, worked through step by step — try them before opening the answer.

1 Eva has 30 baseball cards. Eva gives away 2 cards to a friend. How many baseball cards does Eva have left?

Hint: When you give something away, you have less than before. Think about how to find the amount remaining.

Show the answer

Answer: 28

  1. Eva starts with 30 baseball cards.
  2. Subtract the cards given away: 30 - 2 = 28.

The answer is 28 cards.

2 Ben has 61 baseball cards. Ben gives away 3 cards to a friend. How many baseball cards does Ben have left?

Hint: When you give something away, you have less than before. Think about how to find the amount remaining.

Show the answer

Answer: 58

  1. Ben starts with 61 baseball cards.
  2. Subtract the cards given away: 61 - 3 = 58.

The answer is 58 cards.

3 Ava has 45 baseball cards. Ava gives away 29 cards to a friend. How many baseball cards does Ava have left?

Hint: When you give something away, you have less than before. Think about how to find the amount remaining.

Show the answer

Answer: 16

  1. Ava starts with 45 baseball cards.
  2. Subtract the cards given away: 45 - 29 = 16.

The answer is 16 cards.

4 Kaia has 23 baseball cards. Kaia gives away 6 cards to a friend. How many baseball cards does Kaia have left?

Hint: When you give something away, you have less than before. Think about how to find the amount remaining.

Show the answer

Answer: 17

  1. Kaia starts with 23 baseball cards.
  2. Subtract the cards given away: 23 - 6 = 17.

The answer is 17 cards.

5 Max owes 37 dollars to a friend for a borrowed video game. Max pays back 9 dollars. How much does Max still owe?

Hint: Think of debt as money you need to return. Paying back reduces the amount you owe.

Show the answer

Answer: 28

  1. The original debt is $37.
  2. Subtract the payment made: $37 - $9 = $28.

The answer is $28 dollars still owed.

6 Ethan has 95 baseball cards. Ethan gives away 48 cards to a friend. How many baseball cards does Ethan have left?

Hint: When you give something away, you have less than before. Think about how to find the amount remaining.

Show the answer

Answer: 47

  1. Ethan starts with 95 baseball cards.
  2. Subtract the cards given away: 95 - 48 = 47.

The answer is 47 cards.

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