Math1050CreditCardDebtAssignmentNameKaterynaGurska

Youhavereceivedyourmonthlycreditcardstatementandmustnowdeal
withthefinancialrealitiesoflastmonthsbirthdaycelebration.Whileyour
milestoneinyearswasdeservingofacelebration,dealingwiththe$2000in
creditcardchargeswillrequiresomeplanning.
YourcreditcardstatementliststheAPR(AnnualPercentageRate)foryour
balancetobe14.5%.Thisistheyearlyinterestratethecreditcardcompany
usesincalculatinginterestdueonyourbalance.Thecreditcardcompany
compoundsinterestmonthly.Yourmonthlyinterestrateoncreditcard
chargeswillbe:i=

APR/12=0.145/12=0.012083

Theminimumpaymentrequiredbyyourcreditcardcompanyis$25/month.
Assumingthatyoudonotmakeanynewchargestoyouraccount,answerthe
followingquestionstohelpyoudeterminethebestplanforpayingoffthis
creditcarddebt.
1.Tobeginwith,letscheckouttheplanofonlypayingtheminimum
amountdueeachmonth.Togetafeelforhowthiswillaffectthebalance,
finishfillinginthefollowingtableusingtheminimummonthlypaymentof
$25.

Month OldBalance

Interest

Payment

NewBalance

$25.00

$1999.17

$2000.00

$1999.17

$24.16

$25.00

$1998.33

$1998.33

$24.15

$25.00

$1997.48

$1997.48

$24.14

$25.00

$1996.62

$24.17

$1996.62

$24.13

$25.00

$1995.75

$1995.75

$24.11

$25.00

$1994.86

$1994.86

$24.10

$25.00

$1993.96

$1993.96

$24.09

$25.00

$1993.05

$1993.05

$24.08

$25.00

$1992.13

10

$1992.13

$24.07

$25.00

$1991.20

11

$1991.20

$24.06

$25.00

$1990.26

12

$1990.24

$24.05

$25.00

$1989.31

Whatisthetotalamountthathasbeenpaidtothecreditcardcompanyatthe
endofthefirstyear?$300.00
Howmuchoftheoriginalbalancehasbeenpaidoffattheendofthefirst
year?$10.69
Fromlookingatthenewbalancesoverthefirstyear,howmanyyearsdoyou
thinkitwilltaketopayoffthe$2000?(Thisisaguesssothereisnowrong
answer.Beforegoingontostep2,writedownyourbestestimate.)
75years
Math1050CreditCardDebtAssignmentNameKaterynaGurska2.A
formulaforcalculatingthepayment,P,requiredtopayoffadebtofamount
DinMmonthswithmonthly
interestrateiisP=(d*i)/(1(1+i))^M
n=ln[((Di)/P)+1]/ln(1+i)
Usingthisformula,solveforMtodeterminethenumberofmonthsitwill
taketopayoffthe$2000creditcarddebtwithminimummonthlypayments
of$25.Roundthenumberofmonthstotwodecimalplaces.(Attachallwork

forthisassignmenttotheend.)
(Ln[(200(0.012083))/25)+1)/(ln(1+0.012083)=283.12permonth
Howlongisthisinyears,roundedtothenearesttenthofayear?23.6years
Whatisthetotalamountpaidtothecreditcardcompany,roundedtothe
nearestdollar?25(283.12)=$7078
3.Howmanymonthswillberequiredtopayoffthedebtifyoupay$50each
month?Roundtotwodecimalplaces.
(ln[(2000(0.012083)/50+1])/(ln(1+0.1283)
Howlongisthisinyears,roundedtothenearesttenthofayear?4.6years
Whatisthetotalamountpaidtothecreditcardcompany,roundedtothe
nearestdollar?54.98(50)=2749$
4.Howmanymonthswillberequiredtopayoffthedebtifyoupay$75each
month?Roundtotwodecimalplaces.
32.38months
Howlongisthisinyears,roundedtothenearesttenthofayear?
2.7years
Whatisthetotalamountpaidtothecreditcardcompany,roundedtothe
nearestdollar?
75(32.38)=2429$
Math1050CreditCardDebtAssignmentNameKaterynaGurska
5.Howlargewouldyourmonthlypaymenthavetobeinordertopayoff
yourdebtin12months?Rounduptothenextnearestcent.
P=(d*i)/(1(1+i))12=180.04

Whatisthetotalamountpaidtothecreditcardcompany,roundedtothe
nearestdollar?180.04(12)=2160$
6.Whatisthebestplanforpayingoffthe$2000?Why?Payingitoffinthe
creditcardassoonaspossiblebecauseitmightdecreaseamountofpaying.
Whatistheworstplan?Why?Makeminimumpaymentsbecauseitincrease
thelessinterest.
Whatshouldyoudoifyoucannotaffordtomakethepaymentsrequiredby
thebestplan?Makehigherpaymentsthatyoucanafford
7.Whataretwothingsthattheaverageconsumercanlearnbycompleting
thisassignment?
i.donotspendalotofmoneyoncreditcardifitwouldtakeyoutopayit
multiplemonthtopayitoff
ii.thelessmoneyyoupaypermonthtowardyourcreditcardthemoreyou
willpayininterest.