How to Calculate Monthly Payments and Pay Off Credit Card Debt

What is the monthly payment needed to pay off a $2000 credit card debt in 1 year with an 18% annual interest rate compounded daily? How long will it take to pay off the same debt with monthly payments of $125?

Calculating Monthly Payments for Credit Card Debt

To calculate the monthly payments needed to pay off a $2000 credit card debt in 1 year with an 18% annual interest rate compounded daily, we can use the formula for the monthly payment on a loan: Monthly Payment = (P * r * (1 + r)^n) / ((1 + r)^n - 1) Where: P = Principal amount (initial balance) = $2000 r = Monthly interest rate = (18% / 100) / 12 = 0.015 n = Number of monthly payments = 12 months Plugging in the values: Monthly Payment = (2000 * 0.015 * (1 + 0.015)^12) / ((1 + 0.015)^12 - 1) Monthly Payment ≈ $175 Therefore, the monthly payments needed to pay off the $2000 credit card debt in 1 year would be approximately $175.

Time to Pay Off Debt with Monthly Payments of $125

To determine how long it will take to pay off the $2000 credit card debt with monthly payments of $125, we can rearrange the formula and solve for the number of monthly payments (n): n = -log(1 - (P * r) / M) / log(1 + r) Where: M = Monthly payment = $125 Plugging in the values: n = -log(1 - (2000 * 0.015) / 125) / log(1 + 0.015) n ≈ 17 Rounding up to the next highest integer, it will take approximately 17 months to pay off the credit card debt with monthly payments of $125.

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