Final answer:
To determine the total amount paid for brake repairs with a 24.5% annual interest rate, calculate interest monthly on the remaining balance, and subtract the $100 payment. The process repeats until the balance is zero. Paying more than the required amount can reduce the total interest paid and the time to pay off the debt.
Step-by-step explanation:
A car owner pays for new brakes costing $756.25, with a credit card that has an annual interest rate of 24.5%. If the car owner pays $100 a month until the balance is paid off, determining the total amount paid involves calculating the interest accrued each month on the remaining balance, then subtracting the payment made. This process is repeated until the balance is paid off. Since this is a complex calculation that changes with each payment due to the reducing balance, it is typically done using a financial calculator or software designed for amortization schedules.
It is important to note that making only minimum payments on a credit card balance can lead to a significant increase in the total amount paid due to the high interest rates typically associated with credit cards. This approach results in paying more in interest over time compared to paying off the balance quickly.
Using the given situation as an example, paying more than the minimum or required payment each month can reduce the time taken to pay off the debt and the total interest paid. This demonstrates the importance of understanding how credit card interest, monthly payments, and the principal balance interact when managing debt.