Question

You have two credit cards. Card Name (APR %) Existing Balance Credit Limit Murk (5.6%) $675.49 $1,500.00 Mini (9.85%) $902.43 $1,000.00 What is your debt ratio? If you budget $375 to payoff your credit card debt and you payoff the highest interest card first while maintaining the interest accrued on the other card, how many months does it take you to pay it off and how much is the payment each time excluding the last payment?

Answer 1

Your debt ratio is the total existing balance divided by the total credit limit.

Debt ratio = ($675.49 + $902.43) / ($1,500.00 + $1,000.00) = 1577.92 / 2500.00 = 0.631176 or 63.12%

Payoff time:

To determine the payoff time, you need to first calculate the total interest paid on both cards each month.

Interest on Murk card = $675.49 x 5.6% = $38.06

Interest on Mini card = $902.43 x 9.85% = $89.03

Total interest = $38.06 + $89.03 = $127.09

With a budget of $375 to pay off the credit card debt and paying off the highest interest card first (Mini card), you can calculate the number of months it will take to pay off the debt as follows:

Monthly payment (excluding the last payment) = ($902.43 + $38.06) / (number of months - 1) = $940.49 / (number of months - 1)

Solving for the number of months, you get:

$375 / ($940.49 / (number of months - 1)) = number of months - 1

($375 * (number of months - 1)) / $940.49 = number of months - 1

$375 * (number of months - 1) = $940.49 * (number of months - 1)

$375 = $940.49

number of months - 1 = $375 / $940.49

number of months - 1 = 0.400208

Thus, it will take you approximately 5 months to pay off the debt, including the last payment. The monthly payment (excluding the last payment) will be approximately $375.

Hope this helps!