Calculating APR and Monthly Payments

Oct 13, 2025 by wbrum.org 43 views

Introduction

Abraham's credit card has an APR of 13%, calculated on the previous monthly balance. This means that if Abraham has a balance of $100 at the end of the month, he will be charged 13% interest on that balance, resulting in a new balance of $113. In this scenario, Abraham makes a payment of $50 every month. His credit card record for the last 7 months is shown in the table below.

Credit Card Record

Month	Balance	Interest	Payment	New Balance
1	$100	$13	$50	$63
2	$63	$8.19	$50	$21.19
3	$21.19	$2.75	$50	-$31.56
4	-$31.56	$-4.10	$50	$18.44
5	$18.44	$2.38	$50	-$31.18
6	-$31.18	$-4.05	$50	$14.77
7	$14.77	$1.92	$50	-$34.31

Calculating APR and Monthly Payments

To calculate the APR, we need to know the interest rate charged on the previous monthly balance. In this case, the APR is 13%. To calculate the monthly payment, we can use the formula:

Monthly Payment = (Balance + Interest) / 12

Where Balance is the previous month's balance, and Interest is the interest charged on that balance.

Understanding the Credit Card Record

Looking at the credit card record, we can see that the balance is decreasing every month, but it's not decreasing at a constant rate. This is because the interest charged on the previous month's balance is not constant. In month 1, the interest charged is $13, which is 13% of the previous month's balance of $100. In month 2, the interest charged is $8.19, which is 13% of the previous month's balance of $63.

Calculating the Total Interest Charged

To calculate the total interest charged, we need to add up the interest charged in each month. We can do this by multiplying the interest charged in each month by the number of months, and then adding up the results.

Total Interest Charged = ($13 + $8.19 + $2.75 + $-4.10 + $2.38 + $-4.05 + $1.92) x 7

Total Interest Charged = $20.19 x 7

Total Interest Charged = $141.33

Calculating the Total Amount Paid

To calculate the total amount paid, we need to add up the payments made in each month. We can do this by multiplying the payment made in each month by the number of months, and then adding up the results.

Total Amount Paid = ($50 + $50 + $50 + $50 + $50 + $50 + $50) x 7

Total Amount Paid = $350 x 7

Total Amount Paid = $2450

Calculating the Total Amount Owed

To calculate the total amount owed, we need to add up the new balance in each month. We can do this by multiplying the new balance in each month by the number of months, and then adding up the results.

Total Amount Owed = ($63 + $21.19 + -$31.56 + $18.44 + -$31.18 + $14.77 + -$34.31) x 7

Total Amount Owed = $22.31 x 7

Total Amount Owed = $156.17

Conclusion

In this scenario, Abraham's credit card has an APR of 13%, calculated on the previous monthly balance. He makes a payment of $50 every month. His credit card record for the last 7 months is shown in the table. The total interest charged is $141.33, the total amount paid is $2450, and the total amount owed is $156.17.

Recommendations

Based on this scenario, we can make the following recommendations:

Abraham should try to pay more than the minimum payment every month to reduce the total interest charged.
Abraham should try to pay off the balance in full every month to avoid interest charges.
Abraham should consider consolidating his debt to a lower-interest credit card or loan.

Limitations

This scenario assumes that the APR is 13% and the monthly payment is $50. In reality, the APR and monthly payment may vary depending on the credit card issuer and the individual's credit score. Additionally, this scenario assumes that the interest charged is calculated on the previous month's balance, which may not be the case in all credit card agreements.

Future Research

Future research could involve:

Calculating the total interest charged and total amount paid for different APRs and monthly payments.
Analyzing the impact of credit card debt on an individual's credit score.
Exploring alternative methods for paying off credit card debt, such as debt consolidation or credit counseling.
Abraham's Credit Card: A Q&A Guide =====================================

Introduction

Abraham's credit card has an APR of 13%, calculated on the previous monthly balance. He makes a payment of $50 every month. His credit card record for the last 7 months is shown in the table. In this article, we will answer some frequently asked questions about Abraham's credit card situation.

Q: What is APR and how is it calculated?

A: APR stands for Annual Percentage Rate, which is the interest rate charged on a credit card balance. In Abraham's case, the APR is 13%, which means that if he has a balance of $100 at the end of the month, he will be charged 13% interest on that balance, resulting in a new balance of $113.

Q: How does the credit card company calculate the interest charged?

A: The credit card company calculates the interest charged by multiplying the previous month's balance by the APR. In Abraham's case, the interest charged in month 1 is $13, which is 13% of the previous month's balance of $100.

Q: What is the difference between the balance and the new balance?

A: The balance is the amount owed on the credit card at the end of the month, while the new balance is the amount owed after the interest has been charged. In Abraham's case, the balance in month 1 is $100, while the new balance is $113.

Q: How does the credit card company calculate the monthly payment?

A: The credit card company does not directly calculate the monthly payment. However, the monthly payment is typically the minimum payment required to avoid late fees and penalties. In Abraham's case, the monthly payment is $50.

Q: What happens if Abraham makes a payment that is less than the minimum payment?

A: If Abraham makes a payment that is less than the minimum payment, he will be charged a late fee and his credit score may be affected. In addition, the interest charged on the previous month's balance will continue to accrue, resulting in a larger balance.

Q: Can Abraham pay off the balance in full every month?

A: Yes, Abraham can pay off the balance in full every month to avoid interest charges. However, this may not be possible if he has a large balance or if he is not able to make a payment of the full amount.

Q: What are the consequences of not paying off the credit card balance in full?

A: If Abraham does not pay off the credit card balance in full, he will be charged interest on the previous month's balance, resulting in a larger balance. In addition, his credit score may be affected and he may be charged late fees and penalties.

Q: Can Abraham consolidate his debt to a lower-interest credit card or loan?

A: Yes, Abraham can consolidate his debt to a lower-interest credit card or loan. This may involve transferring the balance to a new credit card or loan with a lower APR, or taking out a new loan to pay off the existing debt.

Q: What are the benefits of consolidating debt?

A: Consolidating debt can provide several benefits, including:

Lower interest rates: Consolidating debt to a lower-interest credit card or loan can result in lower interest rates and lower monthly payments.
Simplified payments: Consolidating debt can simplify payments by combining multiple debts into one loan or credit card.
Improved credit score: Consolidating debt can improve credit scores by reducing the amount of debt and improving payment history.

Q: What are the risks of consolidating debt?

A: Consolidating debt can also involve risks, including:

Higher fees: Consolidating debt may involve higher fees, such as origination fees or balance transfer fees.
Longer repayment period: Consolidating debt may result in a longer repayment period, which can increase the total amount paid over time.
Credit score impact: Consolidating debt can impact credit scores, particularly if the new loan or credit card has a higher APR or fees.

Conclusion

Abraham's credit card situation is a complex one, involving an APR of 13% and a monthly payment of $50. By understanding the APR, interest charged, and monthly payment, Abraham can make informed decisions about his credit card debt and take steps to pay off the balance in full.