Credit Card Payment Calculators - Setting Goals
By Mark Barnes,
il-odm.org Staff Writer
If you have a credit card with a balance of $1,000, with an interest rate of 17.99, which is pretty common today, you will likely be required by the creditor to pay a minimum payment of two percent, or $20.00.
If you put these numbers into our minimum payment credit card calculator, you’ll find that if you pay just the required minimum payment on the $1,000, you will pay this debt off in 91 months, and you’ll pay $802 in interest – nearly double the amount of what you’ve borrowed.
Now, go back to your credit card calculator and recalculate your payment, including an additional $20. So, now you pay $40 monthly, instead of the minimum payment. Paying off your credit card in this manner, you will eliminate the debt in 31 months – five years sooner than the other method. And you’ll pay just $239 in interest, a savings of $563.
This is one of the most powerful, yet overlooked, techniques that a borrower can employ. The way credit card companies compound the interest you owe is designed to pay down the principal balance much later. So, when you’re paying minimum payments, you are paying mostly interest, and it takes decades to pay off even small balances.
The savings on bigger credit card balances and cards with higher interest rates is even more astonishing. Consider a card with a balance of $3,000 and interest of 21 percent. With a minimum payment of $60, this debt won’t disappear for a mind-numbing 41 years and seven months, and you’ll pay the credit card company over $17,000.
Suppose you can pay back just $40 more, boosting your monthly payment to $100. Now, your debt will vanish in just three and a half years, and you’ll save over $11,000 in interest payments.
So, now that you see the power of paying more on your credit card than the minimum, grab one of your own credit card bills, and do some calculating of your own. It can actually be fun, changing the amount you pay on the card and seeing how quickly you’ll pay off the debt and, more importantly, how much money you’ll save.
Related Calculator: Set Payoff Goals