Calculating APR and Minimum Payments

Oct 13, 2025 by recoveryshake.com 134 views

Introduction

Credit cards can be a convenient way to make purchases, but they can also lead to debt if not managed properly. One key factor in determining the cost of credit card debt is the Annual Percentage Rate (APR), which is the rate at which interest is charged on outstanding balances. In this article, we will analyze the credit card record of Darnell, who has an APR of 19% and a minimum payment of 2%, to understand how these factors affect his debt over time.

The Credit Card Record

Month	Balance	Interest	Minimum Payment	Balance After Payment
1	$1000	$190	$20	$980
2	$980	$185.80	$19.60	$961.40
3	$961.40	$182.06	$19.224	$942.176
4	$942.176	$178.71	$18.86432	$923.31168
5	$923.31168	$175.60	$18.526432	$904.785248
6	$904.785248	$172.59	$18.195296	$886.589952
7	$886.589952	$169.71	$17.874192	$868.71576

Calculating APR and Minimum Payments

The APR of 19% is calculated on the previous monthly balance, which means that the interest charged each month is 19% of the balance from the previous month. The minimum payment of 2% is also calculated on the previous monthly balance.

To calculate the interest and minimum payment for each month, we can use the following formulas:

Interest = Balance x APR Minimum Payment = Balance x 0.02

Using these formulas, we can calculate the interest and minimum payment for each month in the credit card record.

Analyzing the Credit Card Record

Looking at the credit card record, we can see that the balance decreases by $20 each month, which is the minimum payment. However, the interest charged each month is not constant, as it is calculated on the previous monthly balance.

In the first month, the interest charged is $190, which is 19% of the initial balance of $1000. In the second month, the interest charged is $185.80, which is 19% of the balance of $980. This means that the interest charged each month is decreasing, as the balance is decreasing.

However, the interest charged each month is still significant, and it is affecting the balance. In the first month, the balance decreases by $20, but the interest charged is $190, which means that the balance actually increases by $170. In the second month, the balance decreases by $19.60, but the interest charged is $185.80, which means that the balance actually increases by $166.20.

This pattern continues throughout the credit card record, with the balance decreasing by the minimum payment each month, but the interest charged increasing the balance.

Calculating the Total Interest Paid

To calculate the total interest paid over the 7-month period, we can add up the interest charged each month.

Total Interest = $190 + $185.80 + $182.06 + $178.71 + $175.60 + $172.59 + $169.71 Total Interest = $1265.17

This means that over the 7-month period, Darnell paid a total of $1265.17 in interest, in addition to the minimum payments.

Conclusion

In conclusion, the credit card record of Darnell shows how the APR and minimum payment affect his debt over time. The APR of 19% is calculated on the previous monthly balance, and the minimum payment of 2% is also calculated on the previous monthly balance. The interest charged each month is not constant, as it is calculated on the previous monthly balance, and it is affecting the balance.

The total interest paid over the 7-month period is $1265.17, in addition to the minimum payments. This highlights the importance of understanding the APR and minimum payment when using credit cards, and the need to make timely payments to avoid accumulating debt.

Recommendations

Based on the analysis of Darnell's credit card record, the following recommendations can be made:

Make timely payments to avoid accumulating debt.
Pay more than the minimum payment to reduce the principal balance and interest charged.
Consider consolidating debt to a lower-interest credit card or loan.
Avoid using credit cards for discretionary purchases, and only use them for essential expenses.

By following these recommendations, individuals can avoid accumulating debt and make the most of their credit cards.