ABubbaNation

Pay Off That Credit Card!


Are you drowning in credit card debt? Many people are stuck in the trap of charging up their credit cards and then just paying the minimum balance on their monthly bill. How much does that cost? How much will be paid interest? How long will it take to payoff that loan?

Let's look at some examples to show how much money is lost by using that credit card. Just to keep it easy, we will start with a $1,000.00 balance at a 18% interest rate. Minimum payment amount calculations vary by institution and by payment history, my credit card has a $15.00 minimum payment amount for balances around the $1,000.00 range.

Remember! The credit card companys want you to pay them interest. And if they can put in a late charge here and there, then they really have you trapped.

In order to make a budget (you do have a budget don't you?) you should plan on fixed amount to pay every month until you have the debt payed off. I wrote a little tool to help figure out how long it will take to pay off that balance using a fixed payment amount.

Let's use the HowLongToPayoff tool and see what happens if I use the bank's suggested minimum amount of $15.00 as a starting point.

Step 1

The blank form prompts the user for the simple information. The amount borrowed, interest rate and regular payment amount are required.

Fifteen dollar payments.

Step 2

Supply the required data.

Twenty Five dollar payments.


Step 3

Click on the "Calculate!" button and review the results.

Fifty dollar payments.


Well! It seems that the credit card company did not want me to ever pay off that balance. I guess they would be happy charging my that $15.00 interest forever.

How about paying $25.00 a month?

After changing the "Regular payment amount" to 25 and clicking on "Calculate!" we see the results.

How long and how much interest will it cost to pay off that Credit Card loan?

Beginning Balance is $1,000.00
Interest Rate is % 18.00
Regular Payment Amount is $25.00

Month

Balance

Interest

Payment

New Balance

1

1,000.00

15.00

25.00

990.00

2

990.00

14.85

25.00

979.85

3

979.85

14.70

25.00

969.55

4

969.55

14.54

25.00

959.09

5

959.09

14.39

25.00

948.48

6

948.48

14.23

25.00

937.70

7

937.70

14.07

25.00

926.77

8

926.77

13.90

25.00

915.67

9

915.67

13.74

25.00

904.41

10

904.41

13.57

25.00

892.97

11

892.97

13.39

25.00

881.37

12

881.37

13.22

25.00

869.59

13

869.59

13.04

25.00

857.63

14

857.63

12.86

25.00

845.50

15

845.50

12.68

25.00

833.18

16

833.18

12.50

25.00

820.68

17

820.68

12.31

25.00

807.99

18

807.99

12.12

25.00

795.11

19

795.11

11.93

25.00

782.03

20

782.03

11.73

25.00

768.76

21

768.76

11.53

25.00

755.29

22

755.29

11.33

25.00

741.62

23

741.62

11.12

25.00

727.75

24

727.75

10.92

25.00

713.66

25

713.66

10.70

25.00

699.37

26

699.37

10.49

25.00

684.86

27

684.86

10.27

25.00

670.13

28

670.13

10.05

25.00

655.19

29

655.19

9.83

25.00

640.01

30

640.01

9.60

25.00

624.61

31

624.61

9.37

25.00

608.98

32

608.98

9.13

25.00

593.12

33

593.12

8.90

25.00

577.01

34

577.01

8.66

25.00

560.67

35

560.67

8.41

25.00

544.08

36

544.08

8.16

25.00

527.24

37

527.24

7.91

25.00

510.15

38

510.15

7.65

25.00

492.80

39

492.80

7.39

25.00

475.19

40

475.19

7.13

25.00

457.32

41

457.32

6.86

25.00

439.18

42

439.18

6.59

25.00

420.77

43

420.77

6.31

25.00

402.08

44

402.08

6.03

25.00

383.11

45

383.11

5.75

25.00

363.86

46

363.86

5.46

25.00

344.32

47

344.32

5.16

25.00

324.48

48

324.48

4.87

25.00

304.35

49

304.35

4.57

25.00

283.91

50

283.91

4.26

25.00

263.17

51

263.17

3.95

25.00

242.12

52

242.12

3.63

25.00

220.75

53

220.75

3.31

25.00

199.06

54

199.06

2.99

25.00

177.05

55

177.05

2.66

25.00

154.70

56

154.70

2.32

25.00

132.02

57

132.02

1.98

25.00

109.00

58

109.00

1.64

25.00

85.64

59

85.64

1.28

25.00

61.92

60

61.92

0.93

25.00

37.85

61

37.85

0.57

25.00

13.42

62

13.42

0.20

13.62

0.00

It will take 5 years and 2 months to pay off this debt.
You will pay $538.62 in interest charges and $1,538.62 in total for your $1,000.00 borrowed.



How much will we save by paying $50.00 a month?

After changing the "Regular payment amount" to 50 and clicking on "Calculate!" we see the results.

How long and how much interest will it cost to pay off that Credit Card loan?

Beginning Balance is $1,000.00
Interest Rate is % 18.00
Regular Payment Amount is $50.00

Month

Balance

Interest

Payment

New Balance

1

1,000.00

15.00

50.00

965.00

2

965.00

14.48

50.00

929.48

3

929.48

13.94

50.00

893.42

4

893.42

13.40

50.00

856.82

5

856.82

12.85

50.00

819.67

6

819.67

12.30

50.00

781.97

7

781.97

11.73

50.00

743.70

8

743.70

11.16

50.00

704.85

9

704.85

10.57

50.00

665.42

10

665.42

9.98

50.00

625.40

11

625.40

9.38

50.00

584.79

12

584.79

8.77

50.00

543.56

13

543.56

8.15

50.00

501.71

14

501.71

7.53

50.00

459.24

15

459.24

6.89

50.00

416.13

16

416.13

6.24

50.00

372.37

17

372.37

5.59

50.00

327.95

18

327.95

4.92

50.00

282.87

19

282.87

4.24

50.00

237.11

20

237.11

3.56

50.00

190.67

21

190.67

2.86

50.00

143.53

22

143.53

2.15

50.00

95.68

23

95.68

1.44

50.00

47.12

24

47.12

0.71

47.83

0.00



It will take 2 years and 0 months to pay off this debt.
You will pay $197.83 in interest charges and $1,197.83 in total for your $1,000.00 borrowed.



Conclusions

We can see how expensive that credit card debt is and how paying larger monthly amounts greatly decreases the interest paid.

For the example balance of $1,000.00 at 18% interest rate; paying $25.00 a month will take 5 years and 2 months to pay off with $538.62 in interest charges, while paying $50.00 a month will take 2 years to pay off with $197.83 in interest charges.



Douglas J. Rasor

July 22, 2012

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