- The minimum monthly payment on an outstanding debt of 5270 dollars would be 2% of the outstanding amount which is 105.4 dollars. Out of this minimum monthly payment of 105.4 dollars a certain portion would go towards reducing the outstanding balance and some portion would go towards paying off the interest. The interest component would be 15.53%/12=1.294 %. Then multiplying this by the outstanding amount of 5270 gives us the interest payment of 68.2 dollars. The principal portion would be 105.4-68.2 =37.1974 dollars. See Attached excel sheet for calculations.
- Assuming that my credit card has an outstanding balance of5000.The Annual Percentage rate is 15% and the minimum monthly balance is calculated using 2% as the interest rate. The minimum monthly payment is 2% of the outstanding balance of 5000 which is 100 for the first month. The minimum payment is 100 dollars. Out of this 100 dollars 62.5 dollars go towards interest payments and 37.5 dollars towards the principal payment. Detailed calculations are performed in excel spread sheet attached.
Yes there are numerous other fees. The first one is the annual fee which is charged on an annual basis. The second one is additional cardholder fee and cash advance fees. Yes I am receiving a special offer on not being charged an additional cardholder fee. Yes my credit card is charged an annual fee
If I assume that I have the same outstanding amount of 5270 and 2% is the minimum monthly payment and 15.53% is the APR and it would take me 6.8 years to pay off the debt. In order to pay off my credit card bill sooner I will increase the size of minimum monthly payments. If I want to pay off the credit card debt in 5 years than I would have to increase the amount paid off in principal. That percentage 59 out of the minimum payment of 127 which is equal to 46.45%. See the attached base calculations.
The advice to young adults would be not to amass too much of credit card debt in their early stages of life as they will be stuck in a vicious cycle to pay off the debt for a long period of time. The credit card companies have hidden charges which mean that yongs adults pay significantly more than they ought to pay in interest and other fees. The best strategy would be to look for a credit charge which is offering the lowest fee and not amassing too much debt in the earlier stages of life.
REFERENCES
Credit Karma Amortization calculator. Retrieved from https://www.creditkarma.com/calculators/amortization
Base Calculations
Additional amortization information
Loan Amortization ChartPrincipalInterestBalance12345601,0002,0003,0004,000
PaymentPrincipal Payment ChartPrincipal PaidInterest Paid123456013263952657891104
