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9.3 Being Credit Savvy

to consider her options. If she keeps paying the minimum payment (which drops over time
as the balance declines), it will take her 300 months to pay off her balance, costing her
$11,440.14 in interest (more than twice what she borrowed initially). If she held her repay-
ment amount constant at the beginning minimum payment of $177.33 instead of the declin-
ing minimum payment, this would drop her time for repayment from 300 months to 54. Her
total interest paid over the loan’s life would be $3,936.70 instead of $11,440.14—a savings
of $7,501.45! Figures 9.3 and 9.4 put these numbers into perspective.

Figure 9.3: Interest and balance when making declining payments

By paying only the minimum amount required on her credit card statement each month, it would take
Elena Maria 286 months to pay off her debt, and she will have paid a whopping $11,440.14 more than the
original amount.

Figure 9.4: Interest and balance when making constant payments

On the other hand, if Elena Maria pays a constant amount, based on the beginning minimum payment, it
would take her only 52 months to pay off her debt at $3,936.70 above the original amount. This is still a
lot of cumulative interest, but it is far better than the first scenario.

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