Question

Part 2: Credit Cards

 Another type of personal loan is a credit card. A financial institution allows you to charge a

 purchase to your account, and you are required to pay the financial institution at a later time.

 As with other loans, credit cards charge interest. Interest rates can range from 3% - 22%.

 When you are paying for debt on a credit card, the financial institution will require a minimum balance be paid each month. The higher the interest rate that is charged on the credit card, the

 larger the minimum payment will be.

 You can use credit card payoff calculators such as the one in the following link to determine how much to pay each month and how long it will take to pay off a credit card.

 When using the credit card calculator, be certain that the monthly charges (new spending or borrowing) are set to 0.

 Part 2 Exercises:

 Assume you have a balance of $1,800 on a credit card. Use the credit card payoff calculator to answer the following questions.

 1.

 a. If the credit card has an annual interest rate of 13.6% and only the minimum monthly

 payment of $35 is made, how many months will it take to pay off the credit card?

Answer 1

Solution of Part-2:Credit Card is as under:

Given in the Question:

Loan Amount: $1800

Annual Interest Rate: 13.6%

Monthly Interest Rate: 1.13%

Minimum Monthly Payment: $35

Credit Card Payoff Calculation
Installment No.	EMI Amount	Principal ($)	Interest ($)	Balance Amount ($)
1	35	15	20	1785
2	35	15	20	1771
3	35	15	20	1756
4	35	15	20	1741
5	35	15	20	1725
6	35	15	20	1710
7	35	16	19	1694
8	35	16	19	1678
9	35	16	19	1662
10	35	16	19	1646
11	35	16	19	1630
12	35	17	18	1613
13	35	17	18	1597
14	35	17	18	1580
15	35	17	18	1563
16	35	17	18	1545
17	35	17	18	1528
18	35	18	17	1510
19	35	18	17	1492
20	35	18	17	1474
21	35	18	17	1456
22	35	18	17	1438
23	35	19	16	1419
24	35	19	16	1400
25	35	19	16	1381
26	35	19	16	1361
27	35	20	15	1342
28	35	20	15	1322
29	35	20	15	1302
30	35	20	15	1282
31	35	20	15	1261
32	35	21	14	1241
33	35	21	14	1220
34	35	21	14	1198
35	35	21	14	1177
36	35	22	13	1155
37	35	22	13	1134
38	35	22	13	1111
39	35	22	13	1089
40	35	23	12	1066
41	35	23	12	1043
42	35	23	12	1020
43	35	23	12	997
44	35	24	11	973
45	35	24	11	949
46	35	24	11	925
47	35	25	10	900
48	35	25	10	876
49	35	25	10	850
50	35	25	10	825
51	35	26	9	799
52	35	26	9	774
53	35	26	9	747
54	35	27	8	721
55	35	27	8	694
56	35	27	8	667
57	35	27	8	639
58	35	28	7	612
59	35	28	7	584
60	35	28	7	555
61	35	29	6	526
62	35	29	6	497
63	35	29	6	468
64	35	30	5	438
65	35	30	5	408
66	35	30	5	378
67	35	31	4	347
68	35	31	4	316
69	35	31	4	285
70	35	32	3	253
71	35	32	3	221
72	35	32	3	188
73	35	33	2	155
74	35	33	2	122
75	35	34	1	89
76	35	34	1	55
77	35	34	1	20
78	35	35	0	0
Total		1800	915

Hence, it will take 6 Years and 6 Months (78 Months) to payoff the balance. Total Interest Payable is $915 (approx) and Principal Payable is $1800