Question

Caitlin has a balance of $4,880 on her credit card with an APR of 16%. She pays the minimum monthly payment of $105.86. If Caitlin wants to pay off her balance in 20 months, which expenses can she eliminate to achieve this goal?

Answer 1

Caitlin needs to pay an additional $244 per month to pay off her credit card balance in 20 months.

Step-by-step explanation:

To pay off her balance in 20 months, Caitlin needs to determine how much additional money she needs to pay each month. First, let's calculate the interest charged each month. The APR of 16% is a nominal rate convertible monthly, so the monthly interest rate would be 16% / 12 = 1.33%. The interest charged each month would be $4,880 * 1.33% = $64.86. Subtracting the interest from the minimum payment of $105.86 gives us the amount Caitlin is actually paying towards the principal: $105.86 - $64.86 = $41.00. If Caitlin wants to pay off her balance in 20 months, she would need to pay an additional $4,880 / 20 = $244 per month. Therefore, to achieve her goal, Caitlin would need to eliminate expenses that total at least $244 per month.