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


Please select the best answer from the choices provided.

A
B
C
D

Answer 1

Answer: B

Work:
- Use $1,000 to pay off Card B ($580) and $420 toward Card A, leaving $957 − $420 = $537 on Card A.
- Transfer $537 to the new card with a $50 fee → new balance = $537 + $50 = $587.
- Monthly rate = 0.065/12 = 0.0054166667. Monthly payment to amortize $587 in 12 months:
payment = r·PV / (1 − (1+r)^−12) ≈ 0.0054166667·587 / (1 − (1.0054166667)^−12) ≈ $50.66.