How to Calculate Total Interest on a Credit Card?
What is the process to calculate the total interest paid on a credit card?
Given you have a principal balance of $2480, make minimum monthly payments of $43.78, and will pay off the balance in 93 payments, how much total interest will you pay?
Total Interest Calculation on a Credit Card
To calculate the total interest paid on a credit card, you need to consider the principal balance, monthly payment amount, and the total number of payments. The interest paid each month is determined by subtracting the part of the payment that goes towards the principal from the total payment amount.
Given: Principal balance: $2480 Minimum payment per month: $43.78 Number of payments: 93
When you make the first payment, the total payment of $43.78 has to be paid. Since the entire amount goes towards the principal, the interest paid in the first payment is $0. The same calculation applies to the subsequent payments as well.
After making 93 payments, the total interest paid on a credit card with a principal balance of $2480, and minimum monthly payments of $43.78 will be $0. This is because all your payments are going towards the principal amount, leaving no interest to be paid.
This scenario is ideal for borrowers as they are only paying off the principal balance without any additional interest accumulating. It is crucial to understand how interest is calculated on credit cards to manage your finances effectively.