You owe $1,945.61 on a credit card that has an 11.2% APR. The minimum payment due is $156.00. You decide to pay $300.00. How much do you save in interest after one month by paying more than the minimum, assuming you make the payment at the beginning of the month?
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By paying $300.00 instead of the minimum payment of $156.00, you reduce the balance on the credit card by $144.00.
This means your new balance is $1,801.61 ($1,945.61 - $144.00).
To calculate the interest saved, we first need to determine the daily periodic interest rate:
APR = 11.2%
Daily periodic interest rate = APR / 365 = 0.112 / 365 = 0.0003068
Next, we need to calculate the interest saved for the month:
Interest saved = (new balance * daily periodic interest rate * number of days in the month) - (minimum payment * daily periodic interest rate * number of days in the month)
Assuming a 30-day month, the interest saved would be:
Interest saved = ($1,801.61 * 0.0003068 * 30) - ($156.00 * 0.0003068 * 30)
Interest saved = ($165.93) - ($14.23)
Interest saved = $151.70
Therefore, by paying $300.00 instead of the minimum payment of $156.00 at the beginning of the month, you save $151.70 in interest after one month.