Math 1050 Credit Card Debt Assignment Spring 2015

Jose Vera
Name _________________________________

You have received your monthly credit card statement and must now deal with the financial realities of last months
birthday celebration. While your milestone in years was deserving of a celebration, dealing with the $2000 in credit card
charges will require some planning.
Your credit card statement lists the APR (Annual Percentage Rate) for your balance to be 14.25%. This is the yearly
interest rate the credit card company uses in calculating interest due on your balance. The credit card company
compounds interest monthly. Your monthly interest rate on credit card charges will be:

APR 0.1425

0.011875
12
12

The minimum payment required by your credit card company is $25/month. Assuming that you do not make any new
charges to your account, answer the following questions to help you determine the best plan for paying off this credit
card debt.
1. To begin with, lets check out the plan of only paying the minimum amount due each month. To get a feel for how
this will affect the balance, finish filling in the following table using the minimum monthly payment of $25.
Month
1
2
3
4
5
6
7
8
9
10
11
12

Old Balance
$2000.00
$1998.75

$1,997.49
$1,996.21
$1,994.91
$1,993.60
$1,992.27
$1,990.93
$1,989.57
$1,988.20
$1,986.81
$1,985.40

Interest
$23.75

$23.74
$23.72
$23.70
$23.69
$23.67
$23.66
$23.64
$23.63
$23.61
$23.59
$23.58

Payment
$25.00

$25.00
$25.00
$25.00
$25.00
$25.00
$25.00
$25.00
$25.00
$25.00
$25.00
$25.00

New Balance
$1998.75

$1,997.49
$1,996.21
$1,994.91
$1,993.60
$1,992.27
$1,990.93
$1,989.57
$1,988.20
$1,986.81
$1,985.40
$1,983.98

What is the total amount that has been paid to the credit card company at the end of the first year?

$300
How much of the original balance has been paid off at the end of the first year?

0.8% or $16.02
From looking at the new balances over the first year, how many years do you think it will take to pay off the $2000?
(This is a guess so there is no wrong answer. Before going on to step 2, write down your best estimate.)

25 years

Math 1050 Credit Card Debt Assignment Spring 2015

Name _________________________________
Jose Vera

2. A formula for calculating the payment, P , required to pay off a debt of amount D in M months with monthly
interest rate i is

D i
1 1 i

Using this formula, solve for M to determine the number of months it will take to pay off the $2000 credit card debt
with minimum monthly payments of $25. Round the number of months to two decimal places. Attach all additional
work for this assignment to the end.

253.77 months
How long is this in years, rounded to the nearest tenth of a year?

21.1 years
What is the total amount paid to the credit card company, rounded to the nearest dollar?

$6344
3. How many months will be required to pay off the debt if you pay $50 each month? Round to two decimal places.

54.58 months
How long is this in years, rounded to the nearest tenth of a year?

4.5 years
What is the total amount paid to the credit card company, rounded to the nearest dollar?

$2729
4. How many months will be required to pay off the debt if you pay $75 each month? Round to two decimal places.

32.25 months
How long is this in years, rounded to the nearest tenth of a year?

2.7 years
What is the total amount paid to the credit card company, rounded to the nearest dollar?

2419 dollars

Math 1050 Credit Card Debt Assignment Spring 2015

Jose Vera
Name _________________________________

5. How large would your monthly payment have to be in order to pay off your debt in 12 months? Round up to the next
nearest cent.

$179.81

What is the total amount paid to the credit card company, rounded to the nearest dollar?

$2158
6. What is the best plan for paying off the $2000? Why?

The best plan depends on how much money is presently available to pay off the debt.
Nevertheless, the sooner it is payed, the less money that will be wasted on interest.

What is the worst plan? Why?

While at the beginning it might seem convenient to make small payments, this course
of action should be avoided the most. The interest will inevitably accumulate and the
money payed of in the end will be significantly more than the original value.
What should you do if you cannot afford to make the payments required by the best plan?

Scaling the payments according to your budget will in general be the best alternative to
maximize efficiency and minimize loss.

7. What are two things that the average consumer can learn by completing this assignment?
i.

Interest may seem insignificant in the short term, but it will ultimately accumulate and
cause a huge net loss. Debts should be payed immediately, or at least as fast as your
budget allows.

ii.

Complex mathematical equations are frequently used in our

day to day life. Some play a significant role in important sectors, such as economics,
and without them our lifes wouldn't be as convenient as they are.