Your Christmas ski vacation was great, but it unfortunately ran a bit over budge

Question

Your Christmas ski vacation was great, but it unfortunately ran a bit over budget. All is not lost: You just received an offer in the mail to transfer your $12,200 balance from your current credit card, which charges an annual rate of 20 percent, to a new credit card charging a rate of 10.6 percent. How much faster could you pay the loan off by making your planned monthly payments of $235 with the new card? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) What if there was a 1 percent fee charged on any balances transferred? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Explanation / Answer

Credit Card Balance = $12,200

Monthly Payment = $235

Monthly Interest Rate = 20%/12 = 1.67%

Number of months (Using Excel Nper formula) = 121.25 months = 122 months

New Card Monthly INterest Rate = 10.6%/12 = 0.883%

New number of months = 69.76 months = 70 months

Thus, with the new card, the payment can be cleared (122-70) 52 months faster

(2) If a 1% transfer fee is charged, new balance = 12,200*1.01 = 12,322

Number of months = 70.73 months = 71 months

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