Paying More Than the Required Minimum
Vicki A Benge
The Federal Reserve System provides an online calculator application which consumers can use to determine how long it will take to pay off current credit card debt if only the minimum payment is paid each month, and no new additional charges are added.
The credit card calculator can also provide the consumer with calculated amounts one would need to pay to get the balance to zero in a certain time frame; and another option allows the consumer to enter the monthly payment they are able and/or willing to pay. The calculator will then show the amount of time it will take to pay off the balance. Also, in all of the calculations the Web site will show how much in interest charges will accumulate during the time of payments calculated.
The results are quite astounding. Although our Web site has a policy of offering information only and not proclaiming advice, this is one recommendation, use the calculator provided by the Federal Reserve Board and enter you credit card balance and interest. It will inspire most everyone to pay MORE than a minimum payment on their credit card balance every month, even if it's just five dollars.
Here's an example. I used nice even figures of 5000 debt at 15 percent interest. At an estimated required minimum payment of 100 dollars it will take 24 years to pay off the balance, during which time $7,246 of interest charges will have been paid. Notice that's over $2200 more in interest than the original balance was when we began the minimum payment.
Now here's what the extra five dollars will do. If the consumer pays 105 dollars, it reduces the amount of time to pay off the balance to six years and interest charges will amount to $2,645; $4601 less in interest only!
Twenty dollars above the minimum reduces the total amount of time it takes to pay off the balance yet another year. Paying 120 dollars a month also reduces the total amount of interest charges paid to 2,107 dollars.
Using the original amounts of 5,000 dollars at 15 percent interest, we can tell the calculator application that we would like to pay the debt off completely in two years. It will then provide the amount we need to pay to make that happen. In this case, $243 dollars a month will clear the debt in two years with $819 of that going to interest charges.