Question:

I owe my CapitalOne credit card $2,500 with an interest rate of 21%.
How long will it take me to pay it off with payments of $100 each month?
How much interest will I pay?

Answer:

21% interest rate is a rather high rate. The good news however is that
you have decided to commit to a fixed monthly payment to pay off your loan.
That alone will save you a lot of time and and a good bit of money!

Let’s compare the difference between paying a fixed amount each month,
instead of just making the minimum monthly payment:

A $2,500 balance at 21% APR will take you 26 years and 1 month
to pay it off in full. The Interest Paid will be a whopping $5,194.02.

Now, if you instead paid a fixed payment of $100 per month, it would take you only
2 years and 10 months to pay it off in full, and the interest paid would be $816.60.

You would pay off the debt 23 years and 11 months faster at a savings of
$4,377.42 in interest payments. Now, you see why making the minimum payment
each month is not such a great strategy (but it is better than not paying).

Sticking with a fixed payment helps you avoid the CapitalOne trap of letting
the balance stretch out for years and years.

What’s In Your Wallet? - Their Money!

You will be able to speed up the time it takes to pay off your balance substantially.
You will save even more money if you can do the following…

Lower your interest rate by calling your issuer and suggest you will take
your business elsewhere if you don’t get a lower interest rate. If your credit
is good, you have an excellent chance of getting them to lower your rate.

I have gone to a real estate seminar where they suggested this same strategy
to the attendees. The next day more than a dozen people reported successfully
getting their rates lowered and the amount of their credit increased.

If the credit card company won’t budge, consider transferring your balance
to another credit card with a better rate. An interest rate of 12%, with the same
$2,500 balance and $100 monthly payments, will save you an additional $470
in interest payments.

And you will pay off your balance in full in just under two and a half years.

Another strategy is to add some more money to your monthly payment.
Even if you can’t get a lower rate and continue to pay an interest rate of 21%,
by adding another $20 a month to your $100 monthly payment, you will pay off
the debt in two years and three months. And you will pay just under $637 in interest.

If you are really motivated or come into some extra money, you can pay off this debt
in just one year by making payments of $233 a month (at the same high interest rate
of 21% that you are paying now).

However, with a lower rate, you will be debt free even faster… Go for it!

This entry was posted on Sunday, October 14th, 2007 at 1:18 pm and is filed under Credit Card Debt. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.