Michael has credit card debt of $60,000 that has an 18% APR,compounded monthly.The minimum monthly payment only requires him to pay the interest on his debt.He receives an offer for a credit card with an APR of 10% compounded monthly.If he rolls over his debt onto this card and makes the same monthly payment as before,how long will it take him to pay off his credit card debt?
A)72 months
B)78 months
C)84 months
D)98 months
E)104 months

Question

Quizplus · Accepted Answer

Using the formula for monthly compound interest, we can find that his current monthly interest payment is ($60,000 x 0.18)/12 = $900. If he rolls over his debt to the new card with a 10% APR, his monthly interest payment will be ($60,000 x 0.10)/12 = $500. If he continues to make the same monthly payment, he will be paying $400 towards the principal on the new card ($900 - $500).

Using financial calculator or spreadsheet software, we can find that it will take him approximately 98 months to pay off the debt on the new card. Therefore, the best answer is D.

Michael Has Credit Card Debt of $60,000 That Has an 18