Question 6 • [PERFIN] Personal Finance, Sem 2 (26-27)
James has a balance of $1,230 on his credit card that has an APR of 24%. He currently pays the minimum monthly payment of $30.75. If James wants to pay off his balance in 18 months, determine the monthly payment he would need to make. Choose the following modification with the least cuts to his current expenses that will allow James to pay off his balance in 18 months. Income Wages $3,015.00 Expenses Rent $1250.00 Utilities $432.45 Food/Clothes $345.00 Entertainment $255.00 Car $360.00 Credit Card $30.75 Cell Phone $103.89 Net Income $237.91
Answer
A
James can eliminate $83 from Food/Clothes.
B
James can eliminate $25 from Food/Clothes and $27 from Entertainment.
C
James can eliminate $15 from Food/Clothes and $22 from Entertainment.
D
The minimum payment is enough to pay off the balance within 24 months.
Explanation
The monthly interest rate is 24% ÷ 12 = 2%. Using the loan payment formula for a $1,230 balance over 18 months gives a required payment of about $82.04 per month. That is about $51.29 more than James’s current $30.75 payment. Choice B cuts $25 from Food/Clothes and $27 from Entertainment, freeing $52—enough to cover the increase with the least cuts among the choices that work.
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