On Math to Help You Get Out of Debt

A couple years ago when I was in law school, a friend of mine who was overwhelmed with credit card debt asked me to figure out how much in monthly payments she should make in order to fully pay off the debt in a certain number of years.  Although the math was rather easy to figure out, this little project got me all excited–it was the most exposure to math I had since college (well, ok, I sat in on couple math courses in law school) and more importantly, it was a great answer to that eternal question, “When do I ever use math?”

The formula I calculated eventually made its way into a PDF format using a computer language called Latex, something I tried to learn back then but didn’t get too far in.  I was recently digging through my computer and found the PDF file.  I post the Debt Payment Calculator here for your convenience.  May you find it useful.

Two warnings about using the formula.  First, it assumes the interest is compounded monthly.  This is rarely a problem because credit card companies charge financing interest every month.

The second issue, related to the first, is a little more complex.  The interest rate you must plug in to the equation is the effective monthly rate.  Do not use what is commonly known as APR.  That percentage, short for Annual Percentage Rate, has a deceptive nomenclature because it’s not really the interest rate you end up paying in a period of one year.  What actually happens is 1/12 of the APR is charged per month, meaning you actually pay more per year than the APR.  For example, if your APR is 24%, you are charged 2% rate every month or 26.8% over the year.  In using my formula, make certain you use the 2% number, that is, divide your APR by 12.