Jerry has a credit card debt of $15,600 that he would like to reduce by applying $8,500 of his inheritance money to the balance. In addition, he would like to modify his debt payment plan to pay off the remaining balance in 24 months rather than 60 months. His credit card has an APR of 18%. How much will these changes save Jerry in finance charges (interest)?
1) The total interest that Jerry would pay on the original credit card balance of $15,600 over a period of 60 months, would be his monthly payment of $396.14 x 60 months =$23,768.40 - $15,600 =$8,168.40.
2) After Jerry applied his inheritance of $8,500 to the balance of his credit card, that left him with a balance of $7,100 which he decided to pay off over a period of 24 months. His monthly payments of this new balance would be: $354.46. The total interest on this new balance would be: $354.46 x 24 months =$8,507.04 - $7,100 =$1,407.04
3) The savings between 1 and 2 above would be: $8,168.40 - $1,407.04 =$6,761.36, or "C".
