Addison Currently Has A Monthly Payment Of $\$ 86.25$. If She Wants To Pay Off Her Balance In 24 Months, Determine The Monthly Payments She Would Need To Make. Choose The Option That Requires The Least Cuts To Her Current Expenses To
Understanding the Problem
Addison is currently paying $86.25 per month to pay off her debt. However, she wants to pay off her balance in 24 months. In this scenario, we need to determine the monthly payments she would need to make to achieve her goal.
Formulas and Calculations
To calculate the monthly payments, we can use the formula for monthly payments on a fixed-rate loan:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
- M = monthly payment
- P = principal loan amount (the initial amount borrowed)
- i = monthly interest rate (annual interest rate divided by 12)
- n = number of payments (the number of months the money is borrowed for)
However, since we are not given the principal loan amount or the annual interest rate, we will use a different approach. We will assume that the interest rate is fixed and the same for both scenarios.
Scenario 1: Current Monthly Payment
Addison's current monthly payment is $86.25. To calculate the total amount she would pay in 24 months, we can multiply the monthly payment by the number of months:
$86.25 x 24 = $2066.00
Scenario 2: New Monthly Payment
To calculate the new monthly payment, we need to divide the total amount she wants to pay in 24 months by the number of months:
$2066.00 ÷ 24 = $86.42
Comparison of Scenarios
In Scenario 1, Addison's current monthly payment is $86.25. In Scenario 2, the new monthly payment is $86.42. This means that Addison would need to increase her monthly payment by $0.17 to pay off her balance in 24 months.
Conclusion
Based on the calculations, Addison would need to make a monthly payment of $86.42 to pay off her balance in 24 months. This is an increase of $0.17 from her current monthly payment of $86.25. Therefore, the option that requires the least cuts to her current expenses is to increase her monthly payment by $0.17.
Recommendations
- Addison should review her budget and see if she can afford to increase her monthly payment by $0.17.
- If she cannot afford to increase her monthly payment, she may need to consider other options, such as consolidating her debt or negotiating a lower interest rate with her lender.
Additional Tips
- Addison should also consider paying more than the minimum payment each month to pay off her debt faster and save on interest charges.
- She should also review her budget and see if there are any other areas where she can cut back on expenses to free up more money for debt repayment.
Calculating the Total Amount Paid
To calculate the total amount paid, we can use the formula:
Total Amount Paid = Monthly Payment x Number of Payments
Where:
- Monthly Payment = $86.42
- Number of Payments = 24
Total Amount Paid = $86.42 x 24 = $2066.08
Conclusion
Q: What is the formula for calculating monthly payments?
A: The formula for calculating monthly payments is:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
- M = monthly payment
- P = principal loan amount (the initial amount borrowed)
- i = monthly interest rate (annual interest rate divided by 12)
- n = number of payments (the number of months the money is borrowed for)
Q: How do I calculate the total amount paid?
A: To calculate the total amount paid, you can use the formula:
Total Amount Paid = Monthly Payment x Number of Payments
Where:
- Monthly Payment = the monthly payment amount
- Number of Payments = the number of months the money is borrowed for
Q: What is the difference between a fixed-rate loan and a variable-rate loan?
A: A fixed-rate loan has a fixed interest rate that remains the same for the entire loan term. A variable-rate loan has an interest rate that can change over time, often based on market conditions.
Q: How can I reduce my monthly payments?
A: There are several ways to reduce your monthly payments, including:
- Consolidating your debt into a single loan with a lower interest rate
- Negotiating a lower interest rate with your lender
- Paying more than the minimum payment each month
- Reducing your expenses and allocating more money towards debt repayment
Q: What is the impact of interest rates on monthly payments?
A: Interest rates can have a significant impact on monthly payments. When interest rates are high, monthly payments tend to be higher. When interest rates are low, monthly payments tend to be lower.
Q: Can I pay off my debt early?
A: Yes, you can pay off your debt early by making extra payments or paying more than the minimum payment each month. This can help you save on interest charges and pay off your debt faster.
Q: What are some common mistakes to avoid when paying off debt?
A: Some common mistakes to avoid when paying off debt include:
- Not creating a budget and tracking your expenses
- Not prioritizing your debt payments
- Not communicating with your lender
- Not taking advantage of debt repayment tools and resources
Q: How can I stay motivated to pay off my debt?
A: Staying motivated to pay off debt can be challenging, but there are several strategies that can help, including:
- Setting clear goals and deadlines
- Creating a budget and tracking your progress
- Celebrating small victories along the way
- Seeking support from friends, family, or a debt counselor
Q: What are some resources available to help me pay off my debt?
A: There are several resources available to help you pay off your debt, including:
- Debt counseling services
- Credit counseling agencies
- Online debt repayment tools and resources
- Financial advisors and planners
Conclusion
Paying off debt can be a challenging and overwhelming process, but with the right strategies and resources, it is possible to achieve financial freedom. By understanding the formulas and calculations involved in debt repayment, creating a budget and tracking your expenses, and seeking support from friends, family, or a debt counselor, you can stay motivated and on track to pay off your debt.