To reduce a debt gradually by making equal periodic payments that cover interest and principal owed. In other words, it liquidates on an installment basis. Year Beginning Balance Annuity Payments Interest Paid (2) 0.10 Principal Paid (3) (4) Ending Balance (2) (5) (1) (2) (3) (4) (5) (6) 1 $5,000.00 $2,010.57 $500.00 $1,510.57 $3,489.43 2 3,489.43 2,010.57 348.94 1,661.63 1,827.80 3 1,827.80 2,010.57 182.78 1,827.79 0.01