how much additional monthly income would he require from his raise to pay off the credit card in 11 months?

Question

Bobby has a credit card with a current balance of $3,200 and a 15% APR. With his current monthly payment, he will be able to pay off this debt in 16 months. But Bobby just learned that he is getting a raise at work. If he puts all of the extra income from his raise into his monthly credit card payment,

Answer 1

Hello Naomi,

There are a couple ways to figure this out. By hand you will need to calculate the monthly interest based on the new balance every month. You would do this using the previous balance method or Adjusted Balance method both of which you need the Daily Periodic Rate calculated as: APR/365. You would then multiple this by the current balance and then multiply by the amount of days in the month to get the monthly interest charges.

You would then then add this to principle amount required by the credit card company. Typically they charge around 1% of the balance but sometimes it can be 2% depending on the credit card company.

The other way to calculate this is by using Excel or one of the many credit card calculators you can find on a google search.

Through my calculations: The original problem has Bobby paying $221.19 per month towards the credit card to pay it off in 16 months. If he wanted to pay it off in 11 months he would need to pay $313.18 per month or an additional $91.27 per month.

I hope that helps!