How to Calculate Monthly Payment to Pay Off Credit Card Debt in Three Years?

What is the formula to calculate the monthly payment required to pay off credit card debt in three years?

A) $372

B) $565

C) $590

D) $559

Answer:

The monthly payment required to pay off the credit card debt in three years ≈ $590. Therefore, the correct answer is C) $590.

To calculate the monthly payment required to pay off the credit card debt in three years, we can use the formula for the monthly payment on a fixed-term loan:

Monthly Payment = (Principal * Monthly Interest Rate) / (1 - (1 + Monthly Interest Rate)^(-Total Months))

Where:

Principal = $17,000 (credit card debt)

APR = 12% (Annual Percentage Rate)

Monthly Interest Rate = APR / 12 (converted to a monthly rate)

Total Months = 3 years * 12 months/year = 36 months

Let's calculate the monthly payment:

Monthly Interest Rate = 12% / 12 = 0.01

Total Months = 36

Monthly Payment = (17000 * 0.01) / (1 - (1 + 0.01)^(-36))

Monthly Payment = 170 / (1 - (1.01)^(-36))

Monthly Payment ≈ $590 (rounded to the nearest dollar)