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Paying Off Your Credit Cards: Running The Numbers

Ever thought about paying off your credit card balances? Maybe you would like to be debt free just to reduce your stress. Or perhaps you need to be debt free to retire.

If you have Microsoft Excel running on your computer at home or work, you can use Excel’s NPER function to calculate how quickly you can pay off a debt such as a credit card balance.

The NPER function calculates the term, or number of regular payments, needed to pay off a debt given its interest rate, payment amount, oustanding balance, balloon payment (if any), and, optionally, the type-of-annuity switch.

The type-of-annuity switch is a little complicated, but here’s how it works. If you set the type-of-annuity switch to 1, Excel assumes payments occur at the beginning of the month, following the annuity due convention. If you set the annuity switch to 0 or you omit the argument, Excel assumes payments occur at the end of the month following the ordinary annuity convention.

But let me show you how the function works in theory and in practice. All of this will become quite clear, I’m sure.

The function uses the following syntax:


For example, to calculate the number of £100 monthly payments required to pay off a 9% credit card that has a £10,000 balance, you enter the following formula into an Excel worksheet cell:


The function returns the value 185.53, representing roughly 185 payments and then another roughly half payment. Notice that to convert the 9% annual interest to a period interest, the formula divides the annual interest rate by 12. Notice, too, that the payment amount, as a cash outflow, shows as a negative value while the loan balance, as an implicit cash inflow, shows as a positive value.

One final note: The NPER function rarely returns an integer, or whole-number result. As in the preceding example, it commonly returns a fractional value, indicating that after the last regular payment, an additional fractional payment will also need to be made.

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