Family Fundamentals: Credit: Know what you owe, how you’ll pay it off (Jan. 2013)
How can I calculate how much total interest I will be charged until I get my credit card bill paid off?
good for you for thinking in these terms. Too many people, especially
young people, continue to rack up so much debt on credit cards that they
may not be able to pay it off — ever.
In fact, a recent Ohio State University study
showed that many younger people — those born between 1980 and 1984 —
tend to spend more money than they make every month, making up the
difference on their credit cards. The result could be a lifetime of
trying to manage credit card debt. The researchers said it was likely
many could die decades from now, still owing money on their cards.
key, obviously, is to live within your means, stop using credit, and
make higher monthly payments to eliminate debt as soon as possible. But
as your question reflects, sometimes it helps to see the costs staring
at you in black and white.
The Federal Reserve offers a nifty
online calculator to help you figure out just how much you’ll end up
paying over the long haul, depending on how much you owe, the interest
rate and your monthly payment.
To use the calculator, go to http://www.federalreserve.gov/creditcardcalculator/.
plug in your total balance and the interest rate (the “annual
percentage rate,” or APR) on the card. The site asks for the “highest”
rate with a balance because many cards charge higher rates for different
types of credit — for cash advances, for example. If you have any
balance at the higher rate, the calculator asks you to input that higher
rate just to be conservative.
With just those two pieces of
information, the calculator will tell you how long it will take you to
pay off the credit card balance if you make only the minimum payment
each month. For example, if you owe $7,000 and pay 12.9 percent
- The calculator estimates your minimum payment is $140 a month.
you pay just the minimum payment each month, it will take you 24 years
to pay off your balance — that’s if you don’t put any other charges on
- You’ll end up paying more than double what you owe — a total of $7,416 in interest charges alone.
that sobering piece of news, you can also use the calculator to figure
out how you can pay off your credit card balance more quickly. You can
do so in one of two ways:
- Enter the number of years you hope
to pay off the card. To pay off this balance in two years, for example,
the calculator tells you you’ll have to pay $333 per month. Your
interest charges will total $980.
- Enter a higher monthly
payment: If you pay $250 per month on the card, it will take you three
years to pay off your balance, and you’ll pay $1,374 in interest.
you decide to do, be sure you make your payments on time. The
calculator doesn’t take into account any late fees that could affect
Family Fundamentals is a monthly column on family
issues. It is a service of Ohio State University Extension and the Ohio
Agricultural Research and Development Center. Send questions to Family
Fundamentals, c/o Martha Filipic, 2021 Coffey Road, Columbus, OH
43210-1044, or email@example.com.
For a PDF of this column, click here.
OSU Extension, Family and Consumer Sciences