Joshua’s credit card situation is out of control because he cannot afford to mak

Question

Joshua’s credit card situation is out of control because he cannot afford to make his monthly payments. He has three credit cards with the following loan balances and APRs: Card 1, $4,500, 21%; Card 2, $5,700, 24%; and Card 3, $3,200, 18%. Interest compounds monthly on all loan balances. A credit card loan consolidation company has captured his attention by stating they can save him 25% per month on his credit card payments. This company charges 16.5% APR. Is the company’s claim correct? Assume 10 years as a repayment periods.

Explanation / Answer

Monthly payment

Card 1:

PV=4500

I/Y=21%/12

N=10*12

CPT PMT=89.97

Card 2:

PV=5700

I/Y=24%/12

N=10*12

CPT PMT=125.67

Card 3:

PV=3200

I/Y=18%/12

N=10*12

CPT PMT=57.66

Ttoal payment=273.30

Consolidation Company payment:

PV=4500+5700+3200

I/Y=16.5%/12

N=10*12

CPT PMT=228.66

As consolidation company's payment will be 16% less than the current payment, the claim of consolidation company reducing monthly payment by 25% is false

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