Q: I have a current credit card debt of $700. I am unemployed and have been paying the minimum payment of $30 for the past two months. I know this isn’t suggested because my interest rate will increase, but I have stopped using the card in order to focus on paying off the debt. When do I pay off the interest? Will they add the amount interest due to my statement after I have paid off the debt? Also, how do I lower my interest rate after that? Thanks.

Kristopha Hohn / Flickr | http://www.flickr.com/photos/seishin17/3216147097/

Kristopha Hohn / Flickr source

– Patricia K.

A: Patricia, you didn’t mention a key detail — your credit card’s interest rate. Unless you are still under a 0% APR introductory offer, interest will continue to accrue at the end of every billing cycle. Even if you did have a sign up for such an offer, it most likely won’t last the two years that it would take you to repay $700 when making a $30 monthly payment.

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

Although you may be financially-strapped, any extra funds that you can put toward the credit card bill will expedite the repayment process significantly.

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

APRPayoff time ($30 per month)Total interest paid ($30 monthly payment)Payoff time ($40 per month)Total interest paid ($40 monthly payment)
10%27 months$80.7520 months$76.05
20%31 months$192.0822 months$177.32
30%36 months$362.7724 months$317.26

As you can see, an extra $10 paid per month will mean that you’ll pay off your debt much faster. If you have an alarming interest rate of 30%, that extra $10 per month will knock off a year from your repayment timeline.

Meanwhile, you will save some money — the amount will vary depending on your interest rate. The money saved is good too, but it may seem like nothing when compared to the positive feeling that comes with ridding yourself of this financial burden.


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