Question

Hak Young has accumulated some credit card debt while he was in college. His total debt is now $23,864.00 and his credit card charges 18% interest compounded monthly. He is getting worried about his debt and is determined to pay it off completely. What would Hak Young’s minimum monthly payment have to be in order to pay off his debt in 5 years?

Answer 1

Answer: To find the minimum monthly payment, we need to calculate the monthly interest rate and the total number of payments over 5 years.

Calculate the monthly interest rate: 18%/12 = 1.5%

Calculate the total number of payments: 5 years * 12 months/year = 60 payments

Use the formula for the present value of an annuity:

P = (R * (1 + r)^n) / (((1 + r)^n) - 1)

where P is the payment, R is the debt, r is the monthly interest rate, and n is the number of payments.

Plug in the values:

P = ($23,864 * (1 + 0.015)^60) / (((1 + 0.015)^60) - 1)

The minimum monthly payment would be $547.68.

Explanation: