If you take the maximum length of time to pay off a credit card, at a rate of 18.5%, how many years will it take to pay the debt off? Select the closest whole number of years and a minimum payment of 1/36 or $20, whichever is greater.
A)5
B)8
C)11
D)15
E)20

Question

Quizplus · Accepted Answer

Using the minimum payment of 1/36 or $20, whichever is greater, we can calculate the minimum amount paid each month as $20. Our goal is to determine the amount of time it takes to pay off the debt at an interest rate of 18.5%. Using the formula for the time it takes to pay off a debt with monthly payments, A = P*((r*(1+r)^n)/((1+r)^n-1)), where A is the monthly payment, P is the principal (the amount of debt), r is the monthly interest rate (18.5%/12), and n is the number of payments (in months), we can solve for n. If we assume a starting debt of $1000, we get:

$20 = $1000*((0.185/12)*(1+(0.185/12))^n)/((1+(0.185/12))^n-1)

The closest whole number of years to the solution to this equation is 11, which corresponds to answer choice C. Therefore, it will take approximately 11 years to pay off the debt.

If You Take the Maximum Length of Time to Pay