Interest & Amortization

Where the money goes in year one against year twenty.

3 articles

How to pay off $11,500 in credit card debt at 22% APR

$11,500 at 22% APR

$439a month clears it in three years

paying the $326 minimum instead takes 26.1 years and $20,016 in interest

Minimum payment, first month1% of the balance plus that month's interest, floored at $25	$326
Years on minimums only$20,016 of interest — 174% of what was borrowed	26.1 years
Clear in 12 months$1,416 interest	$1,076/mo
Clear in 24 months$2,818 interest	$597/mo
Clear in 36 months$4,311 interest	$439/mo
Clear in 60 months$7,557 interest	$318/mo
Interest accruing right now$2,530 a year if the balance never moves	$210.83 a month

Notes

The minimum payment is designed to last. At $326 it clears this balance in 26.1 years and costs $20,016 in interest — 174% of the amount borrowed. The reason is that the minimum falls as the balance falls, so the payment shrinks just as fast as the debt does.
A fixed payment is the whole fix. Paying $439 every month regardless of what the statement asks clears it in three years for $4,311. Nothing else about the account has to change.
A 0% balance transfer is worth about $2,818 here, less the transfer fee of 3–5% ($345–$575). It only helps if the balance is actually cleared inside the promotional window; the rate afterwards is usually higher than the one you left.
Interest is charged daily on the average balance, not once at month end. Paying mid-cycle reduces that average and therefore the charge, which is why two people paying the same total in the same month can be charged different amounts.

720 calculations · browse all

Total Interest Paid Over 30 Years: $510,178 on a $400K Loan at 6.5%
On a $400,000 loan at 6.5%, the interest exceeds the amount borrowed. The reason sits in the first payment, where fourteen cents of every dollar touches the debt.
The Interest Rate Sets the Payment. The APR Tells You What It Cost.
Your monthly payment is calculated from the interest rate. The APR exists so you can compare two offers whose fees differ.
Your First Payment Is Mostly Interest, and That Is Arithmetic
On a 30-year loan at 6.5%, the first payment is about 79% interest. Nothing is being taken from you — the interest is simply charged on a balance that has not fallen yet.