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g ​Mary's credit card situation is out of control because she cannot afford to make her monthly payments. She has three credit cards with the following loan balances and​ APRs: Card​ 1, ​$4,700​, 19​%; Card​ 2, ​$5,500​, 23​%; and Card​ 3, ​$3,400​, 17​%. Interest compounds monthly on all loan balances. A credit card loan consolidation company has captured​ Mary's attention by stating they can save Mary 22​% per month on her credit card payments. This company charges 15.5​% APR. Is the​ company's claim​ correct? Assume a 10​-year repayment period.

User Qihui
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1 Answer

7 votes

Answer:

To determine if the company's claim is correct, we need to compare the total interest paid under Mary's current situation with the total interest paid if she consolidates her credit card loans with the company. We can calculate this using the loan balances, APRs, and repayment period provided.

Step-by-step explanation:

Under Mary's current situation, the total interest paid over the 10-year repayment period can be calculated by multiplying each card's loan balance by its respective APR and summing them up.

For Card 1: $4,700 * 0.19 = $893

For Card 2: $5,500 * 0.23 = $1,265

For Card 3: $3,400 * 0.17 = $578

Total interest paid under Mary's current situation: $893 + $1,265 + $578 = $2,736

Now, let's calculate the total interest paid if Mary consolidates her credit card loans with the company. The company charges 15.5% APR.

Total interest paid with consolidation: (Total loan balance) * (Consolidation APR) = ($4,700 + $5,500 + $3,400) * 0.155 = $2,915.50

Comparing the two amounts, we see that the total interest paid with consolidation ($2,915.50) is higher than the total interest paid under Mary's current situation ($2,736). Therefore, the company's claim of saving Mary 22% per month on her credit card payments is not correct.

It's important for Mary to carefully consider her options and explore other alternatives to manage her credit card debt effectively. consolidates her credit card loans with the company. We can calculate this using the loan balances, APRs, and repayment period provided.

User Ozgur Sar
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