Suppose your credit card has a balance of $ 8,400 and an annual interest rate of 15%. You decide to pay off the balance over three years. If there are no further purchases charged to the card,
the monthly payment needed to pay off the balance over three years can be calculated using the formula for monthly loan payments:
P = [r* A] / [1 - (1 + r)^(-n)]
Where:
P = monthly payment
r = monthly interest rate (annual interest rate / 12 months)
A = balance on the credit card
n = number of months
First, we need to find the monthly interest rate:
r = 15% / 12 = 1.25%
Number of months = 3 years x 12 months = 36 months
Now we can plug these values into the formula:
P = [0.0125 * 8400] / [1 - (1 + 0.0125)^(-36)]
P = [105] / [1 - (1.0125)^(-36)]
P = 105 / 0.4497
P ≈ $233.40
Therefore, you would need to make monthly payments of approximately $233.40 to pay off the balance of $8,400 over three years with an annual interest rate of 15%.