Analysis of Credit Card Debt, Research Paper Example

The majority of credit card companies require that a minimum amount of two percent of the outstanding balance be paid on a monthly basis. The perspectives of Shakespeare (2002) and Smith (2012) will be reviewed in this assignment. Considering a balance of $5,270, how much would the minimum monthly payment total?The formula which will be applied in order to find the minimum monthly payment is the minimum percentage of the outstanding balance multiplied by the credit card balance. This is 0.02 x $5, 270= $105.40 (Smith, 2012).

In a review of the monthly payment which was calculated, the amount which is applied toward reducing the principal balance is a fraction of the payment. In order to ascertain the quantity of interest and the amount of the payment which will be applied toward r3educing the principle, the formula which should be applied is I = Prt. The time period for the interest on the outstanding balance of $5, 270 will be represented by the letter t. The rate of annual interest is demonstrated by r and the principal amount of the credit card balance is shown by P and the total interest is I.  In this equation the balance of $5, 270 will be input as P, the rate is established at 15.53%, the time period is thirty days which will be demonstrated in fractional form of a year as 1/ 12 or 0.083333 ( Smith, 2012).

Therefore, in order to find the amount of I, the formula would be (5,270) * (0.1553) * (0.08333333).  In applying this formula it can be observed that the monthly interest on a credit card balance of $5, 270 at an annual percentage rate of 15.53% would be $68.20. This infers that with each payment of $105.40, $68.20 would be going toward paying the interest. This means that $37.20 would be applied toward the reduction of the outstanding principalbalance (Smith, 2012).

The American Express card will be considered. What is the minimum monthly payment? How is the amount of the minimum monthly payment calculated? What is the outstanding balance on the credit card? The outstanding balance on the American Express credit card is $1, 050. The annual percentage rate on the credit card is 6%. The requirements that American Express has in the extension of the credit is that three percent of the balance be paid on a monthly basis. This agreement established the minimum monthly payment on the balance of $1, 050 at $31.50 (Smith, 2012).

In order to find out the amount that is being paid toward the outstanding principal, the formula which will be used is I = Prt.The principal which is P will be $1,050. The annual percentage rate is six percent 6% and the time frame will be demonstrated as one month of 0.0833. The numbers are input into the formula as (1,050) (0.06) (0.083333) = $5.25.  The interest which is required to be paid on a monthly basis is $5.25. In order to find the amount which is paid toward the balance the formula would be $31.50 – $5.25 = $26.25 (Smith, 2012).

There are no other charges being applied to the account. The fixed annual percentage rate of six percent is more than fair. If the rate were variable, this would mean that the monthly payment could vary substantially. If the minimum payment on my credit card is made, it would take thirty three and one third months in order to pay of the present balance. The best recommendation would be to make payments which are slightly higher in order to reduce the balance and to avoid incurring inte4rtdst charges. The best credit strategy is to pay slightly more on a monthly basis. An additional payment of twenty dollars per month would cause the balcony to be repaid in about twenty and a half months (Smith, 2012).

The best advice what I would give a young adult is to avoid credit card debt. “Neither a borrower nor a lender be” (Shakespeare, 2002, p. 62). This is the advice that I would give to a young person on credit cards and the accrual of credit card debt. The young people should save their credit resources for something meaningful (i.e., a home or business).

References

Shakespeare, W. (2002). Hamlet. In J. Mueller (Ed.), Hamlet. Hauppauge, NY: Barron’s Educational Series, Inc.

Smith, K. (2012). Mathematics: Its power and utility (10^th edition).Belmont, CA: Cengage Learning.