Math 1050 Credit Card Debt Project

Name: Kanyon King

You have received your monthly credit card statement and must now deal with the financial realities of last months
birthday celebration. While your milestone in years was deserving of a celebration, dealing with the $2000 in credit card
charges will require some planning.
Your credit card statement lists the APR (Annual Percentage Rate) for your balance to be 14.5%. This is the yearly
interest rate the credit card company uses in calculating interest due on your balance. The credit card company
compounds interest monthly. Your monthly interest rate on credit card charges will be:

APR

0.145

0.012083
12

12

The minimum payment required by your credit card company is $25/month. Assuming that you do not make any new
charges to your account, answer the following questions to help you determine the best plan for paying off this credit
card debt.
1. To begin with, lets check out the plan of only paying the minimum amount due each month. To get a feel for how
this will affect the balance, finish filling in the following table using the minimum monthly payment of $25.
Month

Old Balance

Interest

Payment

New Balance

$2000.00

$24.17

$25.00

$1999.17

$1999.17

$24.16

$25.00

$1998.33

$1998.33

$24.15

$25.00

$1997.48

$1997.48

$24.14

$25.00

$1,996.62

$1996.62

$24.13

$25.00

$1,995.75

$1995.75

$24.11

$25.00

$1,994.86

$1994.86

$24.10

$25.00

$1,993.96

$ 1993.96

$24.09

$25.00

$1,993.05

$1993.05

$24.08

$25.00

$1,992.13

10

$1992.13

$24.07

$25.00

$1,991.20

11

$1991.2

$24.06

$25.00

$1,990.26

12

$1990.26

$24.05

$25.00

$1,989.31

What is the total amount that has been paid to the credit card company at the end of the first year?
A: $300 has been paid to the credit card company at the end of the first year.

How much of the original balance has been paid off at the end of the first year?
A: $10.69 of the original balance has been paid off at the end of the first year.

Math 1050 Credit Card Debt Project

Name: Kanyon King

From looking at the new balances over the first year, how many years do you think it will take to pay off the $2000?
(This is a guess so there is no wrong answer. Before going on to step 2, write down your best estimate.)
A: It will take 30 years to pay off the $2000.

2. A formula for calculating the payment, P , required to pay off a debt of amount D in M months with monthly interest
rate i is

Di
P=
1 (1+i)-M
Using this formula, solve for M to determine the number of months it will take to pay off the $2000 credit card debt
with minimum monthly payments of $25. Round the number of months to two decimal places. (Attach all work for this
assignment to the end.)
A: It will take 283.12 months at a payment of 25 dollars per month to pay off 2000 dollars in credit card debt at 14.5%
APR compounded monthly.

How long is this in years, rounded to the nearest tenth of a year?

A: 283.12 months is approximately 23.6 years.
What is the total amount paid to the credit card company, rounded to the nearest dollar?
A: At 25 dollars per month for 283.12 months, the total amount paid to the credit card company would be 7,078
dollars.

3. How many months will be required to pay off the debt if you pay $50 each month? Round to two decimal places.
A: It would take 54.98 months to pay off the 2000-dollar credit card debt paying 50 dollars per month.

How long is this in years, rounded to the nearest tenth of a year?

A: 54.98 months is approximately 4.6 years.
What is the total amount paid to the credit card company, rounded to the nearest dollar?
A: The total amount paid to the credit card company given the monthly interest rate of 1.2083% at 50 dollars per
month for 54.98 months would be 2,749 dollars.

Math 1050 Credit Card Debt Project

Name: Kanyon King

4. How many months will be required to pay off the debt if you pay $75 each month? Round to two decimal places.
A: At payments of 75 dollars per month, a 2000-dollar credit card balance with a monthly interest rate of 1.2083%
would take 32.38 months to pay off.

How long is this in years, rounded to the nearest tenth of a year?

A: 32.38 months is approximately 2.7 years.
What is the total amount paid to the credit card company, rounded to the nearest dollar?
A: The total amount paid to the credit card company given the monthly interest rate of 1.2083% at 75 dollars per
month for 32.38 months would be $2429.
5. How large would your monthly payment have to be in order to pay off your debt in 12 months? Round up to the next
nearest cent.
A: To pay off a 2000-dollar credit card debt at a 1.2083% monthly interest rate in 12 months, my monthly payments
would have to be $180.05.

What is the total amount paid to the credit card company, rounded to the nearest dollar?
A: The total amount paid to the credit card company in 12 months given the 1.2083% monthly interest rate at
$180.05 per month would be 2,161 dollars.
6.What is the best plan for paying off the $2000? Why?
A: Given the above plans to pay off the $2000, the best plan would be to make monthly payments of $180.05 so that
you avoid paying a large amount in interest.
In general, the best course of action would be to pay as much as you can per month to avoid paying a large
amount in interest. Of course, at a minimum, the $25 minimum monthly payment would have to be met.
What is the worst plan? Why?
A: Given the above plans, the worst plan would be to make minimum payments of $25 per month because you
would end up paying the credit card company a significant amount more in interest.
Assuming you can pay more than the minimum amount, you should always make larger payments to avoid
paying the credit card company a lot more money than you actually borrowed. The worst plan would be making no
payments

Math 1050 Credit Card Debt Project

Name: Kanyon King

What should you do if you cannot afford to make the payments required by the best plan?
A: If you cannot make the payments required by the best plan, you should pay as much as your budget allows per
month so that you can save yourself money in the long run and tackle the debt quickly.

6. What are two things that the average consumer can learn by completing this assignment?
i. Credit cards are a bad idea and should only be used in emergencies or in the event that you are certain you can take
care of the debt quickly without paying a disgusting amount in interest charges.

ii. If you do have credit card debt, work to pay it off as quickly as possible so that you can avoid paying the bank a
whole lot more than you initially borrowed. This means paying more than just the minimum payments monthly. It
may seem like a lot now, but you will save so much more in the long run.