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Financial Literacy Month blog

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Go figure

Posted by Kim McGrigg on 4/27/2008

I am going to let you in on a little secret. There are a lot of people in this world who think that I am smarter than I really am because of this handy calculator from Bankrate. This calculator can quickly answer questions like “if I have $5,000 on a credit card with 18% interest and pay only the minimum monthly payment, how long will it take me to pay it off?” (BTW, the answer is 150 months and you will pay $2,915.66 in interest.)

Before you jump on my bandwagon, there are two important things to know when doing these calculations. The first if that minimum monthly payments are not as minimal as they were back in ought-5. This means that you should avoid being overdramatic by using a 2% minimum monthly payment if you will actually be paying 4%.

The second thing that you need to know is that this calculator does this calculation correctly; there are a lot of others that do not. The difference is that smart folks at Bankrate know that no creditor will take less than a $10 payment. If they didn’t factor in this seemingly small fact, it would appear that your debt will take you a lifetime to repay in teeny, tiny increments.

Speaking of teeny tiny increments, try playing with the What will it take to pay off my credit card calculator to see how much sooner you can repay your debts by paying just a bit more than usual.
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