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Q: I’ve an existing credit card debt of $700. I’m jobless and have actually been paying the minimum payment of $30 for the previous two months. I know this is not recommended since my interest rate will increase, but I’ve actually stopped utilizing the card in order to focus on settling the financial obligation. When do I settle the interest? Will they add the amount interest due to my statement after I’ve paid off the financial obligation? Likewise, how do I lower my rate of interest after that? Thanks.

– Patricia K.

A: Patricia, you did not discuss a key detail – your credit card’s rate of interest. Unless you’re still under a 0 % APR introductory offer, interest will remain to accrue at the end of every invoicing cycle. Even if you did have an enroll in such an offer, it most likely won’t last the 2 years that it would take you to repay $700 when making a $30 regular monthly repayment.

Assuming that your credit card APR is 10 %, it would take 27 months to settle the credit card. At a 20 % APR, it would take 31 months. At a 30 % APR, 36 months.

Although you might be financially-strapped, any additional funds that you can put towards the credit card expense will expedite the payment procedure considerably.

See the table below to see how paying an additional $10 will save money and time:

APR Payoff time ($30 per month) Total interest paid ($30 month-to-month payment) Payoff time ($40 per month) Total interest paid ($40 month-to-month payment)
10% 27 months $80.75 20 months $76.05
20% 31 months $192.08 22 months $177.32
30% 36 months $362.77 24 months $317.26

As you can see, an extra $10 paid per month will imply that you’ll pay off your debt much quicker. If you’ve a worrying rate of interest of 30 %, that extra $10 per month will knock off a year from your payment timeline.

Meanwhile, you’ll save some money – the amount will differ depending upon your rate of interest. The cash saved is excellent too, however it may look like absolutely nothing when compared with the favorable feeling that comes with freing yourself of this financial problem.