Could someone please explain these calculations?

[TandJ61574]

This is for an Economics class.

Problem:

Go to Bankrate.com and use the credit card calculator. If you have a 25,000.00 on your credit card, and you're paying a minimum balance amount each month of
2.5% @18% interest

1. How many years will it tak to pay off the balance on your card?

2. How much total interest would you have paid on the balance?

I have to be doing something wrong because I get 62 months and the total amount of interest comes to over 13,000.00!!!

Please Help!! Thank you so much!

 

[Monte Cristo]

You aren't calculating it right.

473 months and $37,115.16 in interest !!!!

If you're minimum payment is 2.5% monthly and the yearly APR is 18% (which is 1.5 monthly) this means that 1.5% per month is going to interest and 1% per month is going towards your balance. That's why it takes so long.

 

[TandJ61574]

Huh?

So are you saying that it takes almost 40 years to pay this off and you are paying not only the 25,000.00 back but also an additional 37,115.16 in interest bringing the grand total to 62,115.16?

 

[Monte Cristo]

Yes, that's exactly what I am saying. See this link.

http://www.bankrate.com/brm/calc/Mi...cPayment=625&paymentType=min&Submit=Calculate