Question

Caitlin has a balance of $4,880 on her credit card that has an APR of 16%. She currently pays the minimum monthly payment of $105.86. If Caitlin wants to pay off her balance in 20 months, determine the monthly payment she would need to make. Choose the following modification with the least cuts to her current expenses that will allow Caitlin to pay off her balance in 20 months.
Income
Wages
$2,896.00
Expenses
Rent
$1200.00

Utilities
$212.64

Food/Clothes
$335.00

Entertainment
$346.00

Car
$490.00

Credit Card
$105.86

Cell Phone
$116.37
Net Income

$90.13

a.
Caitlin can eliminate $100 from Food/Clothes and $85 from Entertainment.
b.
Caitlin can eliminate $62 from Food/Clothes and $49 from Entertainment.
c.
Caitlin can eliminate $54 from Food/Clothes and $120 from Entertainment.
d.
The minimum payment is enough to pay off the balance within 20 months.



Please select the best answer from the choices provided


A
B
C
D

Answer 1

First compute the required monthly payment.

Monthly rate r = 0.16/12 = 0.0133333333.
Payment = P * r / (1 - (1+r)^-n) with P = 4,880 and n = 20.

(1+r)^20 ≈ 1.303298, so
Payment ≈ 4,880 * 0.0133333333 / (1 - 1/1.303298) ≈ $279.29 per month.

She currently pays $105.86, so she needs about $279.29 − $105.86 = $173.43 more per month.

Check the choices (extra freed from Food/Entertainment):
a) 100 + 85 = 185 extra → enough.
b) 62 + 49 = 111 extra → not enough.
c) 54 + 120 = 174 extra → enough (just above the $173.43 needed).
d) incorrect.

The least cuts that work are choice c.

Answer: C