Question

Your credit card has a balance of ​$3400 and an annual interest rate of 13​%. If you decide to pay off the balance over one year rather than three, how much more must you pay each month and how much less will you pay in total​ interest?

a) $76.92 more per month; $469.76 less total interest
b) $38.46 more per month; $234.88 less total interest
c) $25.64 more per month; $156.25 less total interest
d) $50 more per month; $300 less total interest

Answer 1

To pay off the credit card balance over one year instead of three, you would need to pay $69.86 more each month and pay $470 less in total interest.

Step-by-step explanation:

To find out how much more you must pay each month, we need to calculate the monthly payments in each scenario.

In the case of paying off the balance over one year, the monthly payment would be the total balance divided by the number of months, which is $3400/12 = $283.33.

Therefore, the difference in monthly payments is $283.33 - $213.46 = $69.86.

To calculate how much less you will pay in total interest, we can use the formula: Total Interest = (Total Payments - Principal).

In the scenario of paying off the balance over one year, the total interest paid would be: Total Interest = ($283.33 * 12) - $3400 = $400.

In the scenario of paying off the balance over three years, the total interest paid would be: Total Interest = ($213.46 * 36) - $3400 = $870.

Thus, you would pay $400 - $870 = $470 less in total interest when paying off the balance over one year instead of three.