Suppose you have a $1,000 charge on a credit card charging 1.5% monthly interest using the adjusted balance method. The minimum payment due in May is $20. How much will you save in interest charges in June by paying $40 instead?
I had $8,234.65
To calculate how much you will save in interest charges in June by paying $40 instead of the minimum payment of $20, we need to calculate the interest charges for both scenarios.
First, let's calculate the interest charges for the minimum payment of $20. Since the interest is charged monthly at a rate of 1.5%, we can calculate the interest charge for May using the adjusted balance method.
The adjusted balance method calculates interest based on the balance at the beginning of the billing cycle minus any payments made during that billing cycle. In this case, the adjusted balance for May would be $1,000 - $20 = $980.
Now, let's calculate the interest charge for May. Multiply the adjusted balance by the monthly interest rate of 1.5% or 0.015.
Interest charge for May = $980 * 0.015 = $14.70
Now, let's calculate the interest charges for the higher payment of $40. Following the same steps, the adjusted balance for June would be $1,000 - $40 = $960.
Interest charge for June = $960 * 0.015 = $14.40
To calculate how much you will save in interest charges in June by paying $40 instead of the minimum payment of $20, subtract the interest charge for June with the higher payment from the interest charge for June with the minimum payment:
Savings in interest charges = Interest charge for May - Interest charge for June
= $14.70 - $14.40
= $0.30
Therefore, you will save $0.30 in interest charges in June by paying $40 instead of the minimum payment of $20.