how much has Jennifer lowered her minimum monthly payment?

Question

Jennifer has a credit card balance of $4,350 that comes with a 19% APR.  She would like to have the balance paid off in the next 8 months, but she is having trouble making the monthly payments required to do so. To lower her monthly payments, she decides to sell her porcelain doll collection for $2,000 to apply directly to her credit card balance.  Jennifer still wants to pay off the balance in 8 months.  By applying for the doll money

A.$145.62 

B.$268.14 

C$315.06

D.$583.20

Answer 1

Payment required without selling her doll collection, using a financial calculator

Using a financial calculator to solve for the payment required to pay off this new balance at a 19% APR in the next 8 months

8N (Number of months to pay off loan)

1.5833 I/Y (This is the 19% APR divided by 12 to get the monthly interest rate)

-4,350 PV (This is the balance left after applying the money from the sale to her balance)

?? PMT (This is what we are solving for)

0 FV ( Her balance after all payments)

Her monthly payment is $583.20, which she cannot afford.

If Jennifer applies the proceeds from the sale of her doll collection to her credit card balance, she will be left with:

$4,350 - $2,000 = $2,350.

Again, using a financial calculator to solve for the payment required to pay off this new balance at a 19% APR in the next 8 months.

8N

1.5833 I/Y (This is the 19% APR divided by 12 to get the monthly interest rate)

-2,350 PV (This is the balance left after applying the money from the sale to her balance)

?? PMT (This is what we are solving for)

0 FV ( Her balance after all payments)

Solve for PMT, by CPT, PMT

we get $315.06.

This is the payment required to payoff her credit card balance after applying the proceeds from her doll collection in 8 months.

Her old payment was $583.20, her new payment is $315.06, so she has lowered her monthly payment by:

$583.20 - $315.06 = $268.14.