<problem><style media="all" type="text/css"/>
<text><h2>Paying Off Credit Card Debt</h2>
<p> Each month, a credit
      card statement will come with the option for you to pay a
      minimum amount of your charge, usually 2% of the balance due.
      However, the credit card company earns money by charging
      interest on the balance that you don't pay. So even if you
      pay credit card payments on time, interest is still accruing
      on the outstanding balance.</p>
<p >Say you've made a
      $5,000 purchase on a credit card with 18% annual interest
      rate and 2% minimum monthly payment rate. After a year, how
      much is the remaining balance? Use the following
      equations.</p>
<blockquote>
<p><strong>Minimum monthly payment</strong>
= (Minimum monthly payment rate) x (Balance)<br/>
        (Minimum monthly payment gets split into interest paid and
        principal paid)<br/>
<strong>Interest Paid</strong> = (Annual interest rate) / (12
        months) x (Balance)<br/>
<strong>Principal paid</strong> = (Minimum monthly payment) -
        (Interest paid)<br/>
<strong>Remaining balance</strong> = Balance - (Principal
        paid)</p>
</blockquote>
<p >For month 1, compute the minimum monthly payment by taking 2% of the balance.</p>
<blockquote xmlns:o="urn:schemas-microsoft-com:office:office" xmlns:v="urn:schemas-microsoft-com:vml" xmlns:x="urn:schemas-microsoft-com:office:excel">
<p><strong>Minimum monthly payment</strong>
= .02 x $5000 = $100</p>
<p>We can't simply deduct this from the balance because
        there is compounding interest. Of this $100 monthly
        payment, compute how much will go to paying off interest
        and how much will go to paying off the principal. Remember
        that it's the annual interest rate that is given, so we
        need to divide it by 12 to get the monthly interest
        rate.</p>
<p><strong>Interest paid</strong> = .18/12 x $5000 =
        $75<br/>
<strong>Principal paid</strong> = $100 - $75 = $25</p>
<p>The remaining balance at the end of the first month will
        be the principal paid this month subtracted from the
        balance at the start of the month.</p>
<p><strong>Remaining balance</strong> = $5000 - $25 =
        $4975</p>
</blockquote>
<p xmlns:o="urn:schemas-microsoft-com:office:office" xmlns:v="urn:schemas-microsoft-com:vml" xmlns:x="urn:schemas-microsoft-com:office:excel">For month 2, we
      repeat the same steps.</p>
<blockquote xmlns:o="urn:schemas-microsoft-com:office:office" xmlns:v="urn:schemas-microsoft-com:vml" xmlns:x="urn:schemas-microsoft-com:office:excel">
<p><strong>Minimum monthly payment</strong>
= .02 x $4975 = $99.50<br/>
<strong>Interest Paid</strong> = .18/12 x $4975 =
        $74.63<br/>
<strong>Principal Paid</strong> = $99.50 - $74.63 =
        $24.87<br/>
<strong>Remaining Balance</strong> = $4975 - $24.87 =
        $4950.13</p>
</blockquote>
<p xmlns:o="urn:schemas-microsoft-com:office:office" xmlns:v="urn:schemas-microsoft-com:vml" xmlns:x="urn:schemas-microsoft-com:office:excel">After 12 months, the
      total amount paid is $1167.55, leaving an outstanding balance
      of $4708.10. Pretty depressing!</p>
</text></problem>
