Question

Your credit card has a balance of $3300 and an annual interest rate of 14%. You decided to pay off the balance over two years. If there are no further purchases charged to the card, you must pay $158.40 each month, and you will pay a total interest of $501.60. Assume you decided to pay off the balance over one year rather than two. How much more must you pay each month and how much less will you pay in total interest?

Answer 1

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Answer:

• $137.90 more each month
• $246.00 less total interest

Step-by-step explanation:

The amortization formula is ...

  A = P(r/12)/(1 -(1 +r/12)^(-12t))

for the monthly payment on principal P at annual rate r for t years. Here, we have P=3300, r = 0.14, and t=1, so the monthly payment is ...

  A = $3300(0.14/12)/(1 -(1 +0.14/12)^-12) ≈ $296.30

The payment of $296.30 is ...

  $295.30 -158.40 = $137.90 . . . more each month

The total amount paid is 12×$296.30 = $3555.60, so 255.60 in interest. This amount is ...

  $501.60 -255.60 = $246.00 . . . less total interest