Credit Card Payoff Calculator

How to Calculate Credit Card Payoff

Understanding how to calculate your credit card payoff is crucial for effective debt management. This calculator helps you determine how long it will take to pay off your credit card balance and the total interest you'll pay.

Credit Card Payoff Formula

The formula for calculating credit card payoff is:

$$M = P \times \frac{r(1+r)^n}{(1+r)^n-1}$$

Where:

• M = Monthly payment
• P = Principal balance
• r = Monthly interest rate (annual rate divided by 12)
• n = Number of months

Calculation Steps

1. Calculate the monthly interest rate by dividing the annual rate by 12.
2. Use the formula to calculate the monthly payment if you know how long you want to take to pay off the debt.
3. If you know the monthly payment, use a loop to determine how many months it will take to pay off the debt.
4. Calculate the total interest paid by subtracting the initial balance from the total amount paid.

Example Calculation

Let's calculate the credit card payoff for a balance with the following terms:

• Current Balance (P) = $5,000
• Annual Interest Rate = 18%
• Monthly Payment (M) = $200

Step 1: Calculate monthly interest rate

r = 18% / 12 = 1.5% = 0.015

Step 2: Calculate number of months to pay off (using a loop)

After running the calculation, we find it takes 33 months.

Step 3: Calculate total amount paid

Total Amount Paid = $200 × 33 = $6,600

Step 4: Calculate total interest paid

Total Interest = $6,600 - $5,000 = $1,600

Final Results:

• Total Interest Paid: $1,600
• Total Amount Paid: $6,600
• Time to Pay Off: 2 years and 9 months

Visual Representation

This diagram illustrates how your credit card balance (blue area) decreases over time as you make payments, while the cumulative interest paid (red area) increases. The chart provides a visual representation of how interest accumulates and how long it takes to pay off the balance with fixed monthly payments.