Question

Suppose I have a balance of $5000 on my Bank of America credit card. Assume the interest rate on my card is 14.99%. If I am willing to commit to making monthly payments of $100 dollars, how long will it take me to pay off my credit card? Please show your work.

Answer 1

Answer:- We have given amount of credit=$5000

Interest rate = 14.99%

Minimum payoff monthly =$100

We can approximate your first month’s interest charge is $62.45: $5,000 balance x (.1499 / 12 months) = $62.45. So, now you actually owe $50,62.45 . Your minimum pay off $100 monthly. you only pay the minimum of $100, most of that ($62.45, ) is just going toward paying interest you accumulated over the past month. Even though you’re paying $100 to the credit card company, you’re really only paying $37.55 toward the debt you owed at the end of the previous billing cycle.

Now you are to pay $ 5000 debt and every month you are paying $37.55 toward your debt. So you will need n months:-

n=total debt/debt contribution per month

n=5000/37.55=133 months approax (almost 11 years)