Addison Has A Balance Of $$ 3 , 450 3,450 3 , 450 $ On Her Credit Card With An APR Of $18%$. She Currently Pays The Minimum Monthly Payment Of $$ 86.25 86.25 86.25 $. If Addison Wants To Pay Off Her Balance In 24 Months, Determine The

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Understanding Credit Card Debt

Credit card debt can be a significant financial burden for many individuals. With high interest rates and minimum payment requirements, it can be challenging to pay off the principal balance. In this article, we will explore the concept of paying off credit card debt using a mathematical approach.

The Problem

Addison has a balance of $3,450 on her credit card with an APR of 18%. She currently pays the minimum monthly payment of $86.25. If Addison wants to pay off her balance in 24 months, we need to determine the total amount she needs to pay each month.

Formulating the Problem

To solve this problem, we can use the formula for calculating the monthly payment:

M = P[r(1+r)n]/[(1+r)n – 1]

Where:

  • M = monthly payment
  • P = principal balance (initial balance)
  • r = monthly interest rate (APR/12)
  • n = number of payments (24 months)

Calculating the Monthly Payment

First, we need to calculate the monthly interest rate:

r = 18%/12 = 1.5%/month

Next, we can plug in the values into the formula:

M = 3450[1.5%(1+1.5%)24]/[(1+1.5%)24 – 1]

M ≈ 3450[0.015(1.015)24]/[(1.015)24 – 1]

M ≈ 3450[0.015(1.4153)]/[1.4153 – 1]

M ≈ 3450[0.0212]/0.4153

M ≈ 3450 × 0.051

M ≈ 176.35

Results

Based on the calculation, Addison needs to pay approximately $176.35 per month for 24 months to pay off her credit card balance. This is significantly higher than her current minimum payment of $86.25.

Comparison with Minimum Payment

To understand the impact of paying the minimum payment, let's calculate the total amount paid over 24 months:

Minimum payment = $86.25/month Total amount paid = $86.25 × 24 = $2,068.00

Total Interest Paid

The total interest paid over 24 months is:

Total interest = Total amount paid – Principal balance = $2,068.00 – $3,450.00 = -$1,382.00

However, since the total amount paid is less than the principal balance, we need to recalculate the total interest paid:

Total interest = Principal balance – Total amount paid = $3,450.00 – $2,068.00 = $1,382.00

Conclusion

In conclusion, Addison needs to pay approximately $176.35 per month for 24 months to pay off her credit card balance. This is significantly higher than her current minimum payment of $86.25. Paying the minimum payment will result in a total interest paid of $1,382.00 over 24 months.

Recommendations

Based on the calculation, we recommend that Addison:

  • Pay off her credit card balance in 24 months by paying approximately $176.35 per month.
  • Avoid paying the minimum payment to minimize the total interest paid.
  • Consider consolidating her debt or negotiating a lower interest rate with her credit card issuer.

Q&A: Paying Off Credit Card Debt

In our previous article, we explored the concept of paying off credit card debt using a mathematical approach. We calculated the monthly payment required to pay off a credit card balance in 24 months. In this article, we will answer some frequently asked questions related to paying off credit card debt.

Q: What is the minimum payment required to pay off credit card debt?

A: The minimum payment required to pay off credit card debt is typically a percentage of the outstanding balance, usually around 2-3%. However, paying only the minimum payment can lead to a longer payoff period and more interest paid over time.

Q: How can I calculate the monthly payment required to pay off credit card debt?

A: To calculate the monthly payment required to pay off credit card debt, you can use the formula:

M = P[r(1+r)n]/[(1+r)n – 1]

Where:

  • M = monthly payment
  • P = principal balance (initial balance)
  • r = monthly interest rate (APR/12)
  • n = number of payments (number of months to pay off the debt)

Q: What is the impact of paying only the minimum payment on credit card debt?

A: Paying only the minimum payment can lead to a longer payoff period and more interest paid over time. For example, if you have a credit card balance of $3,450 with an APR of 18% and pay only the minimum payment of $86.25 per month, it may take 24 months to pay off the debt, and you may end up paying over $1,382 in interest.

Q: How can I pay off credit card debt faster?

A: To pay off credit card debt faster, you can consider the following options:

  • Pay more than the minimum payment each month
  • Consider consolidating your debt into a lower-interest loan or credit card
  • Negotiate a lower interest rate with your credit card issuer
  • Cut expenses and allocate more money towards debt repayment

Q: What are some common mistakes to avoid when paying off credit card debt?

A: Some common mistakes to avoid when paying off credit card debt include:

  • Not paying more than the minimum payment each month
  • Not tracking your progress and adjusting your payment plan as needed
  • Not considering the impact of interest rates on your debt
  • Not cutting expenses and allocating more money towards debt repayment

Q: How can I stay motivated to pay off credit card debt?

A: To stay motivated to pay off credit card debt, consider the following strategies:

  • Set clear goals and deadlines for paying off your debt
  • Track your progress and celebrate milestones
  • Consider enlisting the help of a financial advisor or credit counselor
  • Cut expenses and allocate more money towards debt repayment

Conclusion

Paying off credit card debt requires a clear understanding of the math involved and a solid plan for repayment. By avoiding common mistakes and staying motivated, you can pay off your credit card debt in a timely manner and avoid unnecessary interest charges. Remember to always prioritize your financial goals and seek help when needed.

Additional Resources

For more information on paying off credit card debt, consider the following resources:

  • National Foundation for Credit Counseling (NFCC)
  • Financial Counseling Association of America (FCAA)
  • Credit Karma
  • NerdWallet

By taking control of your credit card debt and following a solid plan for repayment, you can achieve financial freedom and a brighter financial future.