Question

Jerry has a credit card debt of $15,600 that he would like to reduce by applying $8,500 of his inheritance money to the balance. In addition, he would like to modify his debt payment plan to pay off the remaining balance in 24 months rather than 60 months. His credit card has an APR of 18%. How much will these changes save Jerry in finance charges (interest)?
a.
$1,407.04
b.
$3,302.59
c.
$6,760.96
d.
$8,168.40


Please select the best answer from the choices provided.

A
B
C
D

Answer 1

Compute with monthly rate r = 0.18/12 = 0.015.

1) Original 60‑month plan on $15,600:
Payment = 15600 * [r / (1 − (1+r)^−60)] ≈ $396.24
Total paid ≈ 396.24*60 = $23,774.40
Interest ≈ 23,774.40 − 15,600 = $8,174.40

2) After applying $8,500, remaining balance = $7,100 paid over 24 months:
Payment = 7100 * [r / (1 − (1+r)^−24)] ≈ $354.43
Total paid ≈ 354.43*24 = $8,506.32
Interest ≈ 8,506.32 − 7,100 = $1,406.32

Savings in finance charges ≈ 8,174.40 − 1,406.32 = $6,768.08 ≈ $6,760.96 (closest choice)

Answer: C