Question

Marcia has two credit cards and would like to consolidate the two balances into one balance on the card with the lower interest rate. The table below shows the information about the two credit cards Marcia currently uses.


Card A
Card B
Amount
$1,879.58
$861.00
APR
14%
10%
Monthly Payment
$43.73
$18.29

After 5 years, how much will Marcia have saved in interest by consolidating the two balances?
a.
$1,526.40
b.
$2,422.80
c.
$105.00
d.
$227.40


Please select the best answer from the choices provided.

A
B
C
D

Answer 1

D

Work (brief):
- Total interest paid if kept separate (both paid off in 5 years): 60*(43.73+18.29) − (1879.58+861.00) = 3721.20 − 2740.58 = $980.62.
- Consolidated loan: P = 2740.58, r = 0.10/12, n = 60. Monthly payment
m = P * [r(1+r)^n]/[(1+r)^n − 1] ≈ $58.23.
Interest paid = 60*m − 2740.58 ≈ 3493.80 − 2740.58 = $753.22.
- Savings = 980.62 − 753.22 = $227.40.

Answer: D ($227.40).