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How interest is calculated

How interest is calculated. 1st month you spend $2,000 using credit card Interest Rate of 20% year (APR) What’s my minimum monthly payment? FORMULA (Balance x (1+APR/12 mths) $2,000 X (1+.20/12) = $2,033.33 $2,033.33- $2,000 = $33.33 interest you pay

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How interest is calculated

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  1. How interest is calculated • 1st month you spend $2,000 using credit card • Interest Rate of 20% year (APR) • What’s my minimum monthly payment? • FORMULA (Balance x (1+APR/12 mths) $2,000 X (1+.20/12) = $2,033.33 $2,033.33- $2,000 = $33.33 interest you pay Bank decides minimum payment of perhaps $60? $40? Or $20? If $60 then, $2,033.33- $60 = $1,973.33 balance • This is done every month until the credit card debt is paid off!

  2. In the end… • At $60 month minimum payment, you’d pay $2,240 interest in 15 years to get rid of the $2,000 debt. • Total: $2,000 + $2,240 = $4,240 • That’s saying you don’t add any more purchases!

  3. Increase the stakes! • Balance of $14,000 at 20% APR. • Interest for one month? • ($14,000 X (1+20%/12 months) • $14,233.33 - $14,000 = $233.33 one month interest you pay • That’s $2,799.96 for the year if you pay $233.33 per month!

  4. Take advantage of the grace period but be careful!

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