Question

Addison has a balance of $3,450 on her credit card that has an APR of 18%. She currently pays the minimum monthly payment of $86. 25. If Addison wants to pay off her balance in 24 months, determine the monthly payments she would need to make. Choose the following modification with the least cuts to her current expenses that will allow Addison to pay off her balance in 24 months. Income Wages $2,278. 00 Expenses Rent $950. 00 Utilities $232. 45 Food/Clothes $445. 00 Entertainment $270. 00 Car $200. 00 Credit Card $86. 25 Cell Phone $77. 89 Net Income $16. 41 a. Addison can eliminate $73 from Food/Clothes and $100 from Entertainment. B. Addison can eliminate $45 from Food/Clothes and $41 from Entertainment. C. Addison can eliminate $25 from Food/Clothes and $22 from Entertainment. D. The minimum payment is enough to pay off the balance within 24 months.

Answer 1

Addison needs to cut $45 from Food/Clothes and $41 from Entertainment, to pay the revised monthly payment.

It is given that

Addison has a balance of $3,450 on her credit card.

APR = 18%

Current monthly payment = $86.25

She wants to choose a monthly payment for 24 months.

So for 24 months,

A revised monthly payment using the formula,

$M = \frac{P.\frac{R}{12}. (1+\frac{R}{12} )^N }{(1+\frac{R}{12})N -1}$

R = 0.18

P = 3450

N = 24

Revised montly payment M = $172.24

Current monthly payment = $86.25

Difference = $86

So, she needs to cut the expenses by  $86

If she cut $45 from Food/Clothes and $41 from Entertainment, she can easily pay the revised monthly payment.

Therefore, Addison needs to cut $45 from Food/Clothes and $41 from Entertainment, to pay the revised monthly payment.

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