Credit Card Debt Analysis

Topics: Credit card, Interest, Debt Pages: 4 (1225 words) Published: February 1, 2014
Analysis of Credit Card Debt
1.Most credit cards require that you pay a minimum monthly payment of two percent of the balance. Based upon a balance of $5,270.00, what would be the minimum monthly payment (assuming no other fees are being applied)? In order to find out what the minimum monthly payment would be we would have to Multiply the minimum monthly payment percentage with the balance. 2% x $5,270.00 = 0.02 x $5,270.00 = $105.40

2.Considering the minimum payment you just calculated, determine the amount of interest and the amount that was applied to reduce the principal. To determine the amount of interest and the amount that will be applied to reduce the principle we must use the formula, I = Prt. I = interest, P = is the principle or the balance, r = is the annual percentage rate, and t is the time frame. So, we will let P = $5, 270, r = 15.53%, t = 1/12 (1 represents one month out of 12 months). I = (5,270)(.1553)(1/12) = $68.20 , this is what the interest would be. This means that I would be paying $68.20 towards my interest. In order to find out the amount that is being applied to reduce my principal I subtract my interest from my minimum payment.

$105.40 - $68.20 = $37.20
This means that only $37.20 is going towards my actual balance. 3.Consider one of your credit cards. What is the balance? How is the minimum monthly payment determined? What would be the minimum payment? How much of the minimum payment goes towards interest? How much of the minimum payment goes towards the principal? The balance of my American Express Card is $1,233.00. My APR (annual percentage rate) is 6%. They require me to pay a minimum monthly payment of 3% of the balance. My minimum monthly payment is $36.99. This is determined by multiplying my balance and the percentage of my minimum monthly payment. $1,233 x .03 = $36.99

To determine how much of my payment goes towards my interest I must use the formula I = Prt. I = interest, P = is the principle or the...
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