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You owe $2000 on a credit card that charges 20% interest. You have $2200 in your...

You owe $2000 on a credit card that charges 20% interest. You have $2200 in your savings account that earns 1.69% interest. Your savings account charges $14.50 a month if you keep a balance of less than $1500 a month. Compare the amount of interest for both to decide what you should do about paying the credit card bill. Consider all factors in the decision. Show your for any calculations you may completed.

Solutions

Expert Solution

Due to the paucity of details in the question regarding the recurring income that the person might have earned in the question, it has been assumed that no further income will be earned. Further, the time line has been stretched to 20 years ( a bit impractical, but to show the impact of decision).

Please note that the calculation has been separated into two parts,

1) Credit card bill is not settled 2) Bill is settled and 3) difference between 1 and 2.

It is clear that it is better to pay off the credit card bill now to avoid an excessive charge on account of late payment interest.

Please refer the attached calculations.  

jeff jeffy answered 1 year ago
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