Question

Janessa wants to pay off her credit card balances within 12 months. She is trying to decide if she should use her $1,000 in savings to pay off part of the balances or if she should transfer the balances to a new card with a low introductory rate. The new credit card has an introductory rate of 6.5% but charges a balance transfer fee of $50 for each balance transfer. Janessa decides to pay of Credit Card B and $420 of Credit Card A, then transfer the remaining balance of Credit Card A to the new card. Which of the following options shows the amount of Janessa's new monthly payment?

Credit Card A: $957
Credit Card B: $580
a.
$54.97
b.
$50.66
c.
$18.12
d.
$46.34

Answer 1

Remaining on A after paying $420: 957 − 420 = $537.
Add the $50 transfer fee: principal P = 537 + 50 = $587.

Monthly rate r = 0.065/12 = 0.0054166667. Number of months n = 12.
Monthly payment = P * r / (1 − (1 + r)^−n)
= 587 * 0.0054166667 / (1 − (1.0054166667)^−12) ≈ $50.66.

Answer: b. $50.66