How can I calculate four years' worth of MasterCard interest?

Damage

Hello

I'll just fill you in quickly as to the situation: I have two amounts of money on my credit card from when I stupidly paid for some things for a friend who was 'definitely' going to pay me back 'next week'. Those bouts of stupidity happened four years ago, so I now need to work out the total amount he needs to pay me, including interest, over that period.

The only debt that I have got is this, and it isn't even my debt! How stupid am I?

Is this simply a matter of phoning MasterCard and saying I've got X-amount of money from X-date on my card, then will they be able to give me a total including interest, or do I need to work it out? I've no idea if the interest rates have changed since then. I've always had a direct debit set up for the minimum payment and just let my card do its own thing.

Just in case this is a simple calculation for someone who knows more about this than me, I have the amounts and dates:

The first is from 17/3/08 and the amount is £927.00.

The second is 2/4/08 and the amount is £1048.00.

Those two amounts have been on my card since those dates and I have been paying interest all that time. I'm a bit lost with it all now.

Thanks very much in advance if you can point me in the right direction with this lot, or maybe show me how I can work out the total.

Best wishes,

InsideInsurance

If you state that it is your only debt then simply take the current balance and add to it all the payments you've made.

nomoneytoday

The interest rates will be detailed on the card statements.

I would expect a monthly rate in the order of 1.4% (18% APR) on a standard credit card - excluding special offers and subprime etc.

Does your (ex) friend admit the debt?

aleph_0

For the sake of convenience, I'll just assume that the total debt starts from 2/4/08, and is £1975. There are probably online calculators out there, but we'll run through the maths, in case your friend gets surprised by the power of compound interest.

You just then add the interest for each year. So if the APR was 15%, then over 4 years the debt has increased to 1975*1.15*1.15*1.15*1.15=£3,454.28. Note that we multiply since interest is compounded.

The general formula is: 1975*(1.15)^(years+(months/12)), where years, months are how many years/months he has had the debt, assuming a 15% APR. If you tell us the APR on your card, I/others will be able to do the exact calculation. Or just replace 15 with the appropriate number in the formula above (which you can then stick in to google to calculate).

Damage

Thanks for your replies!

When I say that it's my only debt, I do buy other things and pay them off quickly, so it's not a clear example of only those two amounts and nothing else over the whole period, rather that it is the only one that constitutes a debt according how I perceive things due to its size and origin.

Yes, my friend acknowledges the debt, so there's no problem there. There's no problem with available funds for him to pay me either, but you know what some people are like! I just need to work it out so I know how much to extract from him.

Thank you all, and thanks also Aleph for your example and formula. I should be able to work it out from that! He's going to get a shock when he sees how much the total has risen to!

thenudeone

If the only balance on the card was the purchase, the above post is spot on.

If you've had other purchases on the card it's more complicated, because you'd have to make an assumption about how much of what you've paid is for your purchases and how much for theirs.

The simplest thing is to assume that none of the original debt has been epaid and has just been building up.
Every month the amount due is increased by the addition of interest calculated as a percentage of the previous running total.
So you need to find out the monthly interest rate from your statements and the number of months it has been borrowed for.

So if the original amount borrowed was £1000 and the monthly interest was 2% (26.8%APR), and it's been outstanding for 24 months, the amount now due is £1000 x 1.02 x 1.02 [repeated for a total of 24 times), or £1608.

InsideInsurance

As long as you've paid off your own spending in full each month than my statement would be true still as all purchases are initially interest free. If you have allowed a few to slip and be repaid over a couple of months then (a) your friends spend hasnt been your only debt and (b) you will need to calculate it yourself and Aleph's is fine as long as you card has no annual/monthly fee on top of interest.

Damage

I've just had a look at a few random statements from the pile and it has been hovering around the 1.5% mark, so that makes it 19.56% compounded, according to a calculator I just used.

Being slightly generous and using 19% instead of 19.5% I make the total just over £3960, using the £1975 and four years example. I had better tell him to sit down before I give him the bad news!

Damage

Regarding my own spending and if I go past the interest-free limit, that shouldn't make any difference, or should it? If I simply use the amount he owes me and the interest rates to calculate the amount now, none of my own spending would affect that calculation.

Apologies if I've got that wrong.

aleph_0

Damage wrote: »

Regarding my own spending and if I go past the interest-free limit, that shouldn't make any difference, or should it? If I simply use the amount he owes me and the interest rates to calculate the amount now, none of my own spending would affect that calculation.

Apologies if I've got that wrong.

Hmm, I forgot about this. You usually only get an interest-free period on spending if you pay off the balance in full. So any your purchases will have incurred interest between the purchase time and the time you paid them off. OTOH, if you have paid off some of the interest on the debt already (i.e. the current balance on the card is not near the £4000 mark), then the compound interest hasn't occurred on that, but obviously you've still had the opportunity cost of not having the money, and the risk of not getting it back.

Not sure if that really helps, or not.

Damage

Yes, that's a help, thanks. That's a good point actually. It will be affected by the fact that I've been making direct debit minimum amount payments all that time.

I haven't looked at a statement for ages, but I've just looked to see what the minimum payment is and it is now up to just over £85. Back in 2008 it was nearer £50.

This is getting really complicated now, if I have to work out how my minimum payments have affected the total amount. If there's not likely to be much in it then I won't complicate things. I've already told him the previous total amount and he didn't faint or anything. If I'm way out with that figure then I'll give him back the difference, but if it's likely to be close then I'll leave things as they are and treat the discrepancy as compensation for being messed about for four years.