Suppose you have a $1,000 charge on a credit card charging 1% monthly interest using the adjusted balance method. The minimum payment due in May is $30. How much will you save in interest charges in June by paying $60 instead?
To calculate how much you will save in interest charges in June, we first need to understand how the adjusted balance method works. The adjusted balance method is a common method used by credit card companies to calculate interest charges.
The adjusted balance method takes into account the balance at the end of the billing cycle and subtracts any payments made during that cycle. This means that the interest is only calculated on the remaining balance after making a payment.
In this scenario, you have a $1,000 charge on your credit card with a 1% monthly interest rate. The minimum payment due in May is $30. To calculate the remaining balance at the end of May, we subtract the minimum payment from the original balance:
Remaining balance = $1,000 - $30 = $970
Now, let's calculate the interest charged for the month of May. Since the monthly interest rate is 1% and the remaining balance is $970, we can find the interest by multiplying the balance by the interest rate:
Interest charged in May = $970 * 1% = $9.70
Therefore, your interest charge in May is $9.70. Now let's calculate how much you will save in interest charges in June by paying $60 instead of the minimum payment.
If you pay $60 in June, the remaining balance at the end of June will be:
Remaining balance = $970 - $60 = $910
To calculate the interest charged in June, we multiply the balance by the interest rate:
Interest charged in June = $910 * 1% = $9.10
By paying $60 instead of the minimum payment of $30, you will save:
Interest savings = Interest charged in May - Interest charged in June = $9.70 - $9.10 = $0.60
So, by paying $60 instead of the minimum payment, you will save $0.60 in interest charges in June.