You charged $1,000 on your credit card for Christmas presents.Your credit card company charges you 26% annual interest,compounded monthly.If you make the minimum payments of $25 per month,how long will it take (to the nearest month)to pay off your balance?

Question

Quizplus · Accepted Answer

To calculate the time it will take to pay off a balance with a fixed monthly payment, you can use the formula for the payment on an amortizing loan or a financial calculator. Given the high interest rate (26% annually, or about 2.17% monthly) and a relatively low monthly payment ($25), the time to pay off the debt will be extended. The correct calculation, considering the compound interest and fixed payment, shows it will take approximately 94 months to pay off the $1,000 debt. This is because the interest accrued each month significantly slows down the principal repayment, especially in the initial months.

You Charged $1,000 on Your Credit Card for Christmas Presents