1. It takes 5 months to pay off the higher-interest card first.
2. The amount of the last payment on the higher-interest card is $232.89. Â It is the balance plus interest in the fifth month.
3. After paying down the debt on the lower-interest card in the 5th month, the balance of the lower-interest card is $338.77. Â
The principal has been reduced. Â The interest is worked on the reduced principal.
4. If the lower-interest card is paid off first, while the interest on the higher-interest card is paid, the tables would look like the following:
Month              1       2       3        4        5     6     7
Principal         1,311.48  1,311.48  1,297.73 1,028.80 732.71  406.71 47.79
Interest accrued   132.46   132.46    131.07   103.91  74.00   41.08  4.83
Payment         132.46   146.21   400.00  400.00 400.00  400.00  52.62
Ending balance  1,311.48  1,297.73 1,028.80   732.71  406.71   47.79   0
Month             1        2        3        4        5       6 Â
Principal         475.00  238.34     0       0     0      0  Â
Interest accrued   30.88    15.49     0      Â
Payment        267.54   253.79     0       Â
Ending balance  238.34     0         0  0 Â
5. The savings by paying off the higher-interest card first is $91.86. Â This is the difference in interest by choosing to pay off the higher-interest card first before the lower-interest card.
Higher-Interest Card:
Month                   1      2         3      4        5     6 Â
Principal             1,311.48   1074.82   814.26   527.38   211.53   Â
Interest accrued       132.46    108.56   82.24    53.27    21.36   Â
Payment (on due date) 369.12 Â Â Â 369.12 Â Â 369.12 Â Â 369.12 Â 232.89 Â Â Â
Ending balance      1,074.82    814.26  527.38    211.53    0   Â
Lower-Interest Card:
Month             1        2        3        4        5       6 Â
Principal         475.00  475.00   475.00   475.00  475.00   338.77  Â
Interest accrued   30.88   30.88    30.88    30.88   30.88    22.02  Â
Payment          30.88   30.88     30.88    30.88   167.11   360.79 Â
Ending balance   475.00  475.00   475.00   475.00  338.77     0 Â
Total interest incurred under each method:
Higher-interests:
1st method: 132.46 Â Â 132.46 Â Â Â 131.07 Â Â 103.91 Â 74.00 Â Â 41.08 Â 4.83 = $619.81
2nd method: Â 132.46 Â Â Â 108.56 Â Â 82.24 Â Â Â 53.27 Â Â Â 21.36 Â Â = $397.89
Lower-interests:
1st method: Â 30.88 Â Â Â 15.49 Â Â Â Â 0 Â Â Â $46.37
2nd method: 30.88 Â Â 30.88 Â Â Â 30.88 Â Â Â 30.88 Â Â 30.88 Â Â Â 22.02 $176.43
$619.81 + $46.37 = $666.18
$397.89 + $176.43 = $574.32
Difference = $91.86
Card Name   (APR %)   Existing Balance   Credit Limit
MarK2 Â Â Â Â Â Â (6.5%) Â Â Â Â Â Â $475.00 Â Â Â Â Â Â $3,000.00
Bee4 Â Â Â Â Â Â Â (10.1%) Â Â Â Â Â Â $1,311.48 Â Â Â Â Â Â $2,500.00
You have $400.00 each month to payoff these 2 credit cards. You decide to pay only the interest on the lowest interest card and the remaining amount to the other card.
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