Question

At the start of January, you have a credit card with a balance of $498, a credit limit of $900, and an interest rate of 15%. You make monthly payments of $35. At the end of which month will your balance be below the target debt ratio.

Answer 1

Answer:

February

Step-by-step explanation:

First off, you have to know the debt ratio

The credit limit is $900, simply divide $900 by 2, you'll get $450. Why you have to divide by 2? Because your debt ratio has to be 50% of the credit limit (if it's over the 50% mark, the score will go down). In conclusion, the debt ratio is $450.00.

At the end of which month will your balance be below the target debt ratio ($450.00)?

Month 1 (January):

Interest accrued = ($498.00)(0.15)(1/12) = aprox. $6.22

end-of-month balance = $498.00 + $6.22 - $35.00 (you make monthly payments) = $469.22

Month 2 (February):  

Interest accrued = ($469.22)(0.15)(1/12) = aprox. $5.86

end-of-month balance = $469.22 + $5.86 - $35.00 = $440.08

At this rate, you are already aware that month 2 (February) has the balance $440.08, which is below the target ratio of $450.00.

Answer 2

do the month to month calculations, since the maximum number of months is four, and minimum 2. Target debt is $900/2=450 or less. ASSUME payment is at the end of the month, then At the end of January: Debt carried over=$498 add interest = $498*0.15/12)=$6.30; total debt=498+6.30=504.30 debt after payment = 504.30-35=$469.22 At the end of February: .... continue as above until debt after payment is at or below $450.