Monthly payments for a loan can be calculated using an annuity formula considering the interest rates and terms. Credit card debts with high APR result in higher payments, while life insurance typically ranges from 5 to 10 times an individual's annual salary.
To compute the monthly payment for a loan or a debt, you need to use the formula for the annuity which factors in the principal amount, the interest rate (APR), and the term of the loan. For credit card debts or student loans, this usually involves compound interest whereas simple interest might be applicable in some other loan types like personal loans.
For a loan with a compound interest rate, the monthly payment can be determined by converting the annual percentage rate (APR) to a monthly rate and then using that rate to calculate the payment over the specified number of monthly installments. The monthly payments can be significantly higher for high-interest debts such as credit cards compared to lower interest loans such as house loans or student loans. It’s also worth noting that paying slightly more than the minimum payment can reduce the loan term and overall interest paid, as seen in provided examples.
An individual’s life insurance needs can vary but a common recommendation is to have coverage that is 5 to 10 times one's annual salary. This should be treated as a general guideline, as personal circumstances such as dependents, debt, and savings should also be considered in determining the appropriate level of life insurance.