Question

Julius currently pays the minimum monthly payment of $34.15 on his credit card, which has a balance of $1,289. His credit card has an APR of 20%. If Julius wants to pay off the balance in 12 months, determine the monthly payments he needs to make. Choose the following modification with the least cuts to his current expenses that will allow Julius to pay off his credit card balance in 12 months.

Income
Wages
$2,456.00
Expenses
Rent
$900.00

Utilities
$186.35

Food/Clothes
$298.00

Entertainment
$330.00

Car
$385.00

Credit Card
$34.15

Cell Phone
$89.49
Net Income

$233.01
a.
Julius can eliminate $31 from Entertainment and $55 from Food/Clothes.
b.
Julius can eliminate $80 from Entertainment and $60 from Food/Clothes.
c.
Julius can eliminate $18 from Entertainment and $32 from Food/Clothes.
d.
The minimum payment is enough to pay off the balance within 12 months

Answer 1

Monthly interest rate = 20%/12 = 0.0166667.
Using the amortization formula PMT = r·PV / (1 − (1+r)^−n) with PV = $1,289, r = 0.0166667, n = 12 gives

PMT ≈ $119.29 per month.

Current minimum = $34.15, so the extra needed each month is about 119.29 − 34.15 = $85.14.

Compare the options (total cuts each month):
- a: $31 + $55 = $86 → just enough (≥ $85.14)
- b: $80 + $60 = $140 → more than enough
- c: $18 + $32 = $50 → not enough
- d: false (minimum payment is not enough)

The least cuts that work are option a.