1. What is the NerdWallet Payment Formula?

The NerdWallet payment formula calculates the fixed monthly payment needed to pay off credit card debt within a specified timeframe, accounting for compound interest. It's based on the standard loan amortization formula.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( D \) — Monthly payment ($)
• \( P \) — Principal balance ($)
• \( R \) — Monthly interest rate (APR/12 as decimal)
• \( N \) — Payoff period in months

Explanation: The formula calculates the fixed payment needed to pay off the principal plus all accrued interest over the specified period.

3. Importance of Credit Card Payment Calculation

Details: Understanding your required monthly payment helps with budgeting and debt repayment planning. It shows how much interest you'll pay and how payment timeframe affects total cost.

4. Using the Calculator

Tips: Enter your current credit card balance, the card's APR, and your desired payoff timeframe. The calculator will show your required monthly payment, total repayment amount, and total interest.

5. Frequently Asked Questions (FAQ)

Q1: Why does APR matter in credit card payments?
A: Higher APR means more interest accrues each month, requiring larger payments to pay off debt in the same timeframe.

Q2: What's a reasonable payoff timeframe?
A: NerdWallet recommends paying off credit cards within 3 years (36 months) or less to minimize interest costs.

Q3: How can I pay less interest?
A: Either pay more each month (reduce N) or transfer to a lower APR card (reduce R) to decrease total interest paid.

Q4: Does this account for minimum payments?
A: No, this calculates fixed payments to pay off debt in your specified timeframe, which are typically higher than minimum payments.

Q5: What if I can't afford the calculated payment?
A: Try extending your payoff period (increase N) or look into balance transfer options to lower your APR.