1. What is the UK Money Credit Card Payoff Formula?

The UK Money formula estimates how long it will take to pay off credit card debt making only minimum payments, accounting for compound interest. It provides a realistic view of debt repayment timelines.

2. How Does the Calculator Work?

The calculator uses the UK Money formula:

Where:

• \( P \) — Principal balance (GBP)
• \( MP \) — Minimum payment (GBP)
• \( R \) — Monthly interest rate (APR/12 as decimal)
• \( T \) — Time to pay off (months)

Explanation: The formula calculates how many months it would take to pay off the debt if only minimum payments are made, considering the compounding interest.

3. Importance of Minimum Payment Calculations

Details: Understanding minimum payment timelines helps consumers realize the true cost of carrying credit card debt and motivates faster repayment strategies.

4. Using the Calculator

Tips: Enter your current balance, typical minimum payment (often 1-3% of balance), and your card's APR. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why does paying only the minimum take so long?
A: Minimum payments are designed to mostly cover interest, not principal. This creates a long repayment period where you pay much more than the original debt.

Q2: What's a typical minimum payment percentage?
A: In the UK, minimum payments are typically between 1-3% of the balance, often with a £5 minimum.

Q3: How can I pay off my card faster?
A: Pay more than the minimum, even small additional amounts can significantly reduce repayment time and total interest paid.

Q4: Does this account for changing interest rates?
A: No, this assumes a fixed APR. If your rate changes, you'd need to recalculate.

Q5: What if I make additional purchases?
A: This calculator assumes no additional charges. Adding new purchases would extend the payoff time.