How Long Will It Take to Pay Off a Credit Card Debt?

How long will it take to pay off a credit card debt?

Jia's credit card company charges her an interest rate of 29.99% per annum, compounded monthly. She owes a total of $2,865.45. If she makes a monthly payment of $125.00 until it is paid off, how many months will it take her to clear the debt?

Answer:

It will take Jia 16 months to pay off her credit card if she makes a monthly payment of $125.00.

To calculate the time it will take Jia to pay off her credit card, we need to determine the number of months required to reach a total payment equal to or greater than the outstanding balance.

Let's break down the steps:

Monthly interest rate = Annual interest rate / 12

Monthly interest rate = 29.99% / 12 = 0.0299 / 12 = 0.0024917

The remaining balance after each monthly payment:

Remaining balance = Total balance - Monthly payment

Continuing this process, we find the following:

Month 1:

Remaining balance = $2,740.45

Interest for the month = $6.83

Remaining balance with interest = $2,747.28

Month 2:

Remaining balance = $2,628.81

Month 13:

Remaining balance = $256.75

Month 14:

Remaining balance = $132.72

Month 15:

Remaining balance = $7.74

Month 16:

Remaining balance = -$117.26