Compound Interest Problems: The Reason And The Answer

Compound interest problems are often associated with paying off loans or debts

. On the other hand, for those who are investing with the compound interest principle are good for profits. Compound interest problems start when loaners realized the overrated interest rate of their loans. To make loans and investments easier for us, the compound interest formula is there to save us from getting into an expensive mistake!

Why Do We Get Compound Interest Problems?

The main cause of compound interest problems is due to overrated interest rates. Another reason causing this is having a lower repayment value of the amount that is loaned for. This is the reason why people are having a hard time paying off a loan or a debt. Interest fees are ways to just make it more stressful for loaners to lessen their debts.

An example of compound interest problems are credit cards. There are credit cards that have a limit balance of over $10K. With this kind of limit, the interest rate of the credit card could go up to as high as 20%. As we all know, credit cards compound interest as well which makes the balance of the owners of the card very high. Not only do credit cards compound interests, they also charge us with fees that add up to our monthly bills.

Compound interest problems faced by owners of credit cards are really expensive mistakes. Just like in our example above, what will happen to someone who pays off only the minimum payment on the card monthly? If one is paying 2% at the minimum rate, he or she should be paying at least $200 a month. If you want to compute how long it will take to pay off the debt, then you may do so. So how long will it take? A total of 9 nine years is needed to pay off a credit card debt. And this is a computation without the additional charges on the card. As one of the compound interest problems, credit cards could ask for about $1.2k a year!

NO to Compound interest problems!

So here is a precaution and a tip as well. Say NO to debts. Let us reciprocate the compound interest problems. Instead, make use of the wonders of the compound interest through investments. Start with small investments like opening for a savings account. It also uses compound interest in a good way and not as one of the compound interest problems. In repaying a credit card like the example above that would take nine years to pay off, why not use that time to save instead? With a total of nine years, you could save up to $25k! You can also do additional payments in the savings account to make your profits higher.

by: William Ava

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