Imagine if you had these three credit cards American Express

Imagine if you had these three credit cards: American Express 4.99% with a balance of $1,192 and a minimum payment of $15, Citibank 13.9996 with a balance of $11,034 and minimum payment of $151 and Chase 9.999% with a balance of $3,582 and a minimum payment of $46. This wehsite (goo.g1/6H132) is recommended for answering these questions a. How long will it take to pay off the debt only paying minimum payments? b. How long will it take to pay off the debt if paying a total of $400 per month? How much do you have to pay each month if you want to be debt free in 4 years? c. d. In what order does the website ask you to pay off your credit cards? How might it be better to pay off the lowest balances first? e.

Solution

Basic Formula

A= P * r(1+r)ⁿ

            (1+r)ⁿ-1

A= EMI Amount

P= Loan Amount (Outstanding Principal of American Express, Citibank and Chase)

r = Rate of Interest

n= No. of Period

Lets solve for American Express Card

Where P= $ 1192,   A=$15 is already provided to us. r =4.99% however since monthly payments are made we adjust our r to monthly basis. Therefore (r =4.99%/12 = 0.416% per month)

Now we plug in the above figures and solve for n.

We get n = 96 (Don’t worry if it isn’t exactly 96. Round off differences can occur)

Remember n= 96 is 96 Months!

Similarly Solve for other two

Thus answer to sub question a) is

Answer to Subquestion b)

A prudent person will always think to square off his loan with higher interest first(Citi bank).

Hence all the amount that remains after paying other two lesser interest loans(Chase and American)

i.e Total Payment of $400- $46(chase)-$15(American)= $339 will be used to pay loan of Citibank

Again solve for n using A=339,46,15 respectively

You will require 49 months to square off your entire loan

subquestion d)

It requires us to pay loans with higher interest first and then the loans with lower interest would follow them.