Question

You have a $7,000 balance on your credit card, which has an effective monthly interest rate of 1.25%. How many months will it take you to pay off the balance by making monthly payments of $300?

Answer 1

PV = Credit card balance = $7,000

P = Monthly payment = $300

r = Monthly interest rate = 1.25%

Let n = number of months

Credit Card balance = P * [1 - (1+r)^-n] / r

$7,000 = $300 * [1 - (1+1.25%)^-n] / 1.25%

$87.5 = $300 * [1 - (1.0125)^-n]

1 - (1.0125)^-n = 0.2916666667

(1.0125)-n = 0.7083333333

(1.0125)^n = 1.41176471

n = log(1.41176471) / log(1.0125)

n = 0.149762322 / 0.00539503189

n = 27.7593025

Therefore, it will take 28 months to clear the credit card balance