Question 21 • [PERFIN] Personal Finance, Sem 2 (26-27)
Julius currently pays the minimum monthly payment of $34.15 on his credit card, which has a balance of $1,289. His credit card has an APR of 20%. If Julius wants to pay off the balance in 12 months, determine the monthly payments he needs to make. Choose the following modification with the least cuts to his current expenses that will allow Julius to pay off his credit card balance in 12 months.IncomeWages$2,456.00ExpensesRent$900.00 Utilities$186.35 Food/Clothes$298.00 Entertainment$330.00 Car$385.00 Credit Card$34.15 Cell Phone$89.49Net Income $233.01
Answer
A
Julius can eliminate $31 from Entertainment and $55 from Food/Clothes.
B
Julius can eliminate $80 from Entertainment and $60 from Food/Clothes.
C
Julius can eliminate $18 from Entertainment and $32 from Food/Clothes.
D
The minimum payment is enough to pay off the balance within 12 months.
Explanation
To pay off $1,289 in 12 months at a 20% APR, use a monthly rate of 20% ÷ 12 and calculate the fixed payment: about $119.40 per month. That is about $85.25 more than Julius’s current $34.15 payment. Choice A cuts $31 from Entertainment and $55 from Food/Clothes, freeing $86, which is enough; choice C frees only $50, while choice B makes larger cuts than needed.
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