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Otters: School My Friend On APR

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Otters: School My Friend On APR

Old 02-05-08, 03:54 PM
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Otters: School My Friend On APR

...a friend* of mine at work says he owes a little over 26K in credit cards (multiple cards I guess) ... and he said he currently paid $481 in finance charges in January 2008... he asked me what his collective APR was for the month (I guess his cards have different APRs) ... I didn't have a good answer for him other than saying "somewhere between 20%-25%" because the $481 sounded really high ... what should I tell the poor guy his collective APR is?

He wants to know how long it will take him to pay off the cards if he doesn't use them anymore ... he said he paid $1700 in December 2007 and plans to continue that pace until they're paid off ... I did some quick math for him and it looked like 20-22 months to pay them off ... does that sound right?

So, in the end ...

Known Data
$26000 balance
$1700 paid in December 2007
$481 finance charges in January 2008

Unknown Data
?? APR
?? months to pay off

What's the formula for figuring out the APR backwards?

$26K balance X APR(n) = $481 in finance charges ... what's n?

Thanks!

==========================================

*I am not the "friend" - just trying to help out a pal at work ...
Old 02-05-08, 03:57 PM
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If he's serious about trying to pay these things off, tell your "friend" to consult a financial advisor. $26,000 is some serious CC debt and an advisor could probably help him consolidate these cards into one payment with a lower overall rate.
Old 02-05-08, 04:26 PM
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He is averaging 22.2% APR
Old 02-05-08, 04:50 PM
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$481 is 1.85% of $26,000. That's how much interest he paid in one month; since there are 12 months in a year, his APR is 12 * 1.85%, or 22.2% (as fishdude said).

If he can net a $1,700 reduction in balance each month, he should be able to pay his loans off in about 19 months (he'll pay a little over $32,000 over the course of those 19 months). Here's a payoff calculator in case he wants to play with the numbers:

http://www.bankrate.com/brm/calc/creditcardpay.asp
Old 02-05-08, 05:22 PM
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Thanks for the help guys ... so it's $26000/$481 = 1.85%, then 1.85% x 12 months = 22.2%. That was easy. I suppose I should have pulled out one of my finance books from college ... I seem to remember that formula now ...

I told him he should look into consolidating if he can get a lower APR ... 22.2% is really high ... ouch. I wonder if he can get a lower APR with a personal loan or something like that ... with a reputable bank ... it's got to be lower than 22.2% ... that's killer ...

Credit Card Payment Calculator

I used this site to figure out what he needs to do to get rid of the debt if he continues to pay the 1700 a month ... seems pretty spot on with what you guys said ...


Credit Card Purchase/Balance: $26000
Interest (Annual Percentage Rate): 22.2
Monthly Payment: $1,700
Months required to pay balance: 19
Your total payment will be: $30,846.77
Your total interest payment will be: $4,846.77

I'll pass this info along to him tomorrow morning ...

*shakes head*
Old 02-05-08, 05:28 PM
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The loan would be dependent on his credit score which I'm guessing isn't going to be the best in the world, even though with the way the formulas work it's possible he could have perfectly fine credit. Either way he should be able to find something better than 22%.
Old 02-05-08, 06:49 PM
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Call the credit card companies and see if they will lower the interest rate. I hear that has been successful for others.
Old 02-05-08, 09:07 PM
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Must be nice to pay $1700 a month on CC debt.

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