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


Please select the best answer from the choices provided.

A
B
C
D

Answer 1

C

After using his $1,750 to pay off Card B ($1,469), Jose transfers Card A ($1,154) and pays a $60 transfer fee, giving a new balance of $1,214. With an 8% APR (monthly rate 0.08/12) over 18 months, the monthly payment is

P = 1214 * [r(1+r)^18]/[(1+r)^18 − 1] ≈ $71.80

So choice (c) is correct.