I always knew that credit cards were evil, but I did not realize how bad they were until this morning when I was crunching some numbers. I used a Credit Card calculator that I found on bankrate.com. I picked on my Bank of America Card because it has the highest balance. On my new statement, my current balance is 41,538.44 because $269.27 in interest was added to my account. My APR is 7.9. (I had to use 8% for the calculator to work)
I used $41,984.17 as the balance, 8% as the interest rate, and 1% plus interest as the minimum payment.
If I only paid the minimum monthly payment, it would take me 503 months (Almost 42 years!!) to pay off this card. Over that time, I would be paying $29,944.76 in interest alone.
Next I re-calculated it using a fixed payment of $700/month which is a little more than my current minimum monthly payment.
If I continuously make a payment of $700/month, I could have this card paid off in 77 months and I would only be paying 11,805.78 in interest. <—— I like this option.
Next, I wanted to see what impact an extra $10/month would do.
Using a fixed payment of $710/month it would take me 76 months to pay off this card and I would be paying $11,576.42 in interest. An extra $10/month saves $229.36 in interest.
If I could afford an extra $50/month, I would be saving $1063.17 in interest.
Please correct me if my math is wrong. I want to try and figure all of this out in a spreadsheet but I have not gotten that far yet. The reason why I wanted to do this is so that I can set some realistic milestones for us to work towards.