Question

a. You have an unpaid credit card debt of $2756. Your interest rate is 20.44%. Use Excel to determine how much you would have to pay each month in order to pay the debt back in 2 years. You will need to program a version of the present value of annuity formula, solving for PMT.

b. Using the information above show the paying down of the account until there is a zero balance. in other words make a table showing payment number, monthly payment, balance less payment, plus interest, and remaining balance. Assume no new charges have been made to the credit card.

c. Now assume you are starting as you were in part b. You make 6 of the same monthly payments and then decide to transfer the balance to another card. There is a one time transfer fee of 3% of the transferred balance. You resume the same monthly payments for 6 months, during which time you enjoy a 2.35% teaser rate. After these 6 months you continue making the same monthly payments at a 26.4% interest rate until the balance is paid off.

d. Use excel to determine the total interest paid back in both situations (part b & c). Was it worth it to transfer the balance to the other card? Why or why not?

Answer 1

It is not worth transfer the balance to anther card. Due to increased interest responsibility associated with the loan amount.

Please review the calculations.