Final answer:
The adjusted balance method produces less interest by calculating interest on the reduced balance after payments, while the previous balance method charges interest on the full starting balance, disregarding payments. Paying off debt faster results in substantial savings on interest.
Step-by-step explanation:
The adjusted balance method produces the least interest per cycle because it calculates interest based on the balance remaining after payments have been made. Therefore, any payments made during the cycle reduce the balance on which interest is charged. This means if you pay off some of the debt, there's less balance to accrue interest.
Conversely, the previous balance method produces the greatest interest per cycle as it calculates interest based on the balance at the beginning of the billing cycle. This method does not consider any payments or purchases made during the cycle. As a result, it charges interest on the full balance from the start of the period, ignoring any reductions from payments.
Paying off debt faster can lead to significant savings on interest, as illustrated by the fact that interest can drastically increase the cost of long-term loans like a 30-year mortgage. By paying more than the minimum required, you reduce the principal balance faster, thereby minimizing the interest incurred over time.