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

After paying off Card B and $420 of Card A, the remaining Card A balance is 957 − 420 = $537. She transfers that $537 and pays a $50 transfer fee, so the new card balance is 537 + 50 = $587.

Monthly interest rate = 0.065/12. The 12-month payment to amortize $587 is
payment = (r·PV) / (1 − (1 + r)^−12)
= (0.065/12 · 587) / (1 − (1 + 0.065/12)^−12) ≈ $50.66.

Answer: b.