How Long Will It Take to Pay Off a Credit Card Debt?
How long will it take to pay off a credit card debt?
Jia's credit card company charges her an interest rate of 29.99% per annum, compounded monthly. She owes a total of $2,865.45. If she makes a monthly payment of $125.00 until it is paid off, how many months will it take her to clear the debt?
Answer:
It will take Jia 16 months to pay off her credit card if she makes a monthly payment of $125.00.
To calculate the time it will take Jia to pay off her credit card, we need to determine the number of months required to reach a total payment equal to or greater than the outstanding balance.
Let's break down the steps:
Monthly interest rate = Annual interest rate / 12
Monthly interest rate = 29.99% / 12 = 0.0299 / 12 = 0.0024917
The remaining balance after each monthly payment:
Remaining balance = Total balance - Monthly payment
Continuing this process, we find the following:
Month 1:
Remaining balance = $2,740.45
Interest for the month = $6.83
Remaining balance with interest = $2,747.28
Month 2:
Remaining balance = $2,628.81
Month 13:
Remaining balance = $256.75
Month 14:
Remaining balance = $132.72
Month 15:
Remaining balance = $7.74
Month 16:
Remaining balance = -$117.26