Credit card debt is a reality for many of us in today’s world. Suppose you have a balance of $5,270.00 on a credit card with an annual percentage rate (APR) of 15%. Most credit cards require that you pay a minimum monthly payment of 2% of the balance.
Based upon a balance of $5,270.00, the minimum monthly payment (assuming no other fees are being applied) will be $105.40. Of this amount, only $65.88 goes toward the principal and pays down what you owe. The remaining amount ($39.52) is the interest you pay to the credit card company.
Therefore, if you pay only $105.40 a month, it will take you 28.2 years to pay off a debt of $5270.00. During that time, you will pay the credit card company $7,967.76 in interest! Understanding this basic fact of credit card debt is important for your future financial security. You can find details of the above calculations in the lecture material of this module.
For this assignment, assume that you have a credit card from the hypothetical Big Bank. Pick an imaginary outstanding balance. Then, answer the following:
What will be the minimum monthly payment of your outstanding balance if the APR is 18% and it requires a minimum monthly payment of 3%? How much of the payment each month will go toward the principal? How much of the payment each month will go to interest? How long will it take to pay off your debt if you pay only the minimum payments? You can also use an online calculator like the following: Bankrate.com. (2012). Credit card calculator: The true cost of paying the minimum. Retrieved from http://www.bankrate.com/calculators/managing-debt/minimum-payment-calculator.aspx What steps can you take to pay off this credit card debt fast? Write your initial response in a minimum of 200 words. Apply APA standards to citation of sources.
By Saturday, February 4, 2017, post your response to the appropriate Discussion Area. Through Wednesday, February 8, 2017, review the postings of your peers and respond to at least two of them. Consider commenting on the following:
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