Question

Jose wants to pay off his credit card balances within 18 months. He is trying to decide if he should use his $1,750 in savings to pay off part of the balances or if he should transfer the balances to a new card with a low introductory rate. The new credit card has an introductory rate of 8% but charges a balance transfer fee of $60 for each balance transfer. Jose decides to pay off Credit Card B using his savings and then transfer the balance of Card A to the new card. Which of the following options shows the amount of Jose's new monthly payment?

Credit Card A: $1,154
Credit Card B: $1,469
a.
$90.43
b.
$68.25
c.
$71.80
d.
$75.34

Answer 1

First find the new principal on the transfer: 1154 + 60 = 1214.

Monthly interest rate r = 0.08/12 = 0.0066666667. Number of months n = 18.

Monthly payment formula: payment = P * r / (1 - (1 + r)^-n)

payment = 1214*(0.0066666667) / (1 - (1.0066666667)^(-18)) ≈ $71.80

Answer: c.