Credit Cards
With the Credit Cards calculation you can find out how long it will take to pay off a debt using different payment options.
This calculation could be a real eye opener!
Credit cards
The minimum payment on a credit card debt is usually calculated as a percentage of the current balance. As the balance drops, so does the minimum payment, but as the remaining debt continues to generate interest, you may end up paying for a very long time.
Just entering a high enough absolute minimum payment when using the percentage option will make a difference.
To see the difference in time and interest that fixed or variable payments can make, switch to fixed payments or set the absolute minimum payment to a higher value.
Loans
Most people pay exactly the amount of the scheduled payments. However, most banks allow you to pay more than the regular payments. This reduces the outstanding debt faster, and as a result, less interest is due and the debt is paid off earlier.
To see the effect of paying more than scheduled, switch to fixed payments and enter a higher loan payment amount. By rounding up the regular payment slightly, you will see the number of payments drop!
To see the amortization schedule, select the Show Details command in the Calculation menu.
To toggle between date and year/period view, click the header of the first details column.
To change the start date, select the Start Date command in the Edit menu to open the Date Options dialog.
Input
| • nominal annual rate | |
| • compounding frequency | |
| • payment frequency | |
| • initial debt | |
| • payment type: | |
| •
percentage of the current debt • fixed amount |
|
| • absolute minimum payment if payments are a percentage of the debt | |
Results
| • number of payments needed to pay off the debt |
| • effective periodic rate |
| • total paid |
| • total interest |
Examples
| • | You have a $1,000 credit card debt. Interest is at 18% compounded monthly. You need to pay a minimum of 2.5 % of the debt each month, with an absolute minimum of $10. How long will it take to pay off the debt and how much interest will you have paid?
Answer: It will take 153 months or 12 years and 9 months to pay off the debt. In the end you'll have paid $1,115 on interest or more than the initial debt. |
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| • | What if instead of minimum payments, fixed payments of $25 are used?
Answer: It will take
153 - 62 = 91 months or 7 years and 7 months less to pay off the debt. |
Related topics
| Nominal annual rate |
| Periodic to Annual Rates |
| Loan Amortization |