Question

Chloe wants to pay off her credit card debt of $7,316.48 that has an APR of 16.73%. She is paying $300 per month.

a) Using the finance charge defined in class (charge = r*(balance-payments+purchases)), what would be the credit card balance (to the nearest dollar) after one year?

b) If she increased her monthly payment by $50 to $350 per month, what would be the credit card balance (to the nearest dollar) after one year?

Answer 1

a) Using the formula for finance charge, we can find the balance after one year:

charge = r*(balance-payments+purchases)

Here, r = 16.73% = 0.1673 (as a decimal), payments = $300 per month = $3,600 per year, and purchases = 0 (since Chloe is not making any new purchases).

Let's assume that x is the balance after one year. Then, we can write:

0.1673*(7316.48-3600) = x - 3600

Simplifying and solving for x, we get:

x = $6,830.58

So, the credit card balance (to the nearest dollar) after one year would be $6,831.

b) If Chloe increases her monthly payment to $350 per month, then her payments for the year would be $4,200. Using the same formula as above, we can find the balance after one year:

0.1673*(7316.48-4200) = x - 4200

Simplifying and solving for x, we get:

x = $5,774.99

So, the credit card balance (to the nearest dollar) after one year with a $350 monthly payment would be $5,775.