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