How to Figure Out How Much to Pay

[StevenXL]

Hello all,

I have a couple of credit cards and I would like to figure out how much I would have to pay per month in order to be debt free in exactly 1 year from February 2010.

Can someone give me some resources so that I can figure this out?

Thanks,

StevenXL

[disneysteve]

Bankrate.com has some good calculators that will let you play with the numbers to figure that out.

[StevenXL]

Yea. I just found that website's calculator.


What I did is I figured out how much I would have to pay monthly in order to get rid of each credit card in 12 months.

This came to a total payment of $940 / month.

Now, if instead of applying the $940 to each credit card in the amount it would take to pay each one off in 12 months, I applied that same amount to the card with the highest interest rate first. I can reduce the time it takes to pay off this debt by 2 months, even though I'm still paying the same amount as it would take to pay them each off in 12 months.

(I did this calculation by adding up all my balances, doing a weighted average of my interest rate, and then putting those numbers into the bankrate calculator, where the payment amount per month is the sum of the amount I'd have to pay to each card individually. Which means I'll actually be able to pay off my balance faster since the calculator assumes a fixed interest rate - this won't be the case since I'm paying off the highest interest rate first, so my interest rate will continue to be reduced as well as my balance!).

[sweeps]

Good luck Steven. Yes, in general it benefits you to pay the minimum on all cards except for the one with the highest interest rate and put all you can towards that one.

A more advanced technique is to do balance transfers. This can help you pay off faster if you have discipline to follow the rules.

[puck36]

Hello all,

I have a couple of credit cards and I would like to figure out how much I would have to pay per month in order to be debt free in exactly 1 year from February 2010.

Can someone give me some resources so that I can figure this out?

Thanks,

StevenXL

Take the total amount / 12 = monthly payment

[disneysteve]

Take the total amount / 12 = monthly payment

That would work if the debt was at 0%, but you need to figure in the finance charges.

[cptacek]

You can look here for the formula:
Loan Payment Formula

The formula for monthly payments is:
Monthly Payment = [rate + [rate / [[[1 + rate]^months] - 1]]] x principal
where rate = APR / (12 * 100)

So, let's say you have an APR of 13.24% (I'm looking at you Bank of America). The rate for the above formula would be:
13.24 / (12 * 100) = 0.011033333333333333333333333333333

You want to pay it off by Feb 2010. We are paying monthly payments, so there are 12 payments.

Let's just say the principal is $14,000. (grr, BoA. I'm coming to get you).

Plug these numbers into the formula:
Monthly Payment = [rate + [rate / [[[1 + rate]^months] - 1]]] x principal
Monthly Payment = [0.011033+ [0.011033/ [[[1 + 0.011033]^12] - 1]]] x $14,000

Please Excuse My Dear Aunt Sally. Sorry, had to remember the order of operations. Parenthesis, Exponents, Multiplication & Division, Addition and Subtraction

Monthly Payment = [0.011033+ [0.011033/ [[1.011033^12] - 1]]] x $14,000

Monthly Payment = [0.011033+ [0.011033/ [1.140737 - 1]]] x $14,000

Monthly Payment = [0.011033+ [0.011033/ 0.140737]] x $14,000

Monthly Payment = [0.011033+ 0.0783942] x $14,000

Monthly Payment = 0.0894272 x $14,000

Monthly Payment = $1251.98

The formula for monthly payments, like we are doing here, uses amount of months as the exponent. If you were making biweekly payments, you would use:
Payment = [rate + [rate / [[[1 + rate]^number of payments] - 1]]] x principal
where rate = APR / ((payments per year) * 100)
or rate = APR / 26 * 100

[daviddane]

I always cut my expensive and i try to save as much i can to get out of debt. I have always been a firm believer of not being debt but due to some conditions i was not able to out of it.