Card Name (APR %) Existing Balance Credit Limit
MarK2 (6.5%) $475.00 $3,000.00
Bee4 (10.1%) $1,311.48 $2,500.00
You have $400.00 each month to pay off these two credit cards. You decide to pay only the interest on the lower-interest card and the remaining amount to the higher interest card. Complete the following two tables to help you answer questions 1–3.
Higher-Interest Card (Payoff Option)
Month 1 2 3 4 5 6 7 8 9 10
Principal 1,311.48 925.09 535.45 142.53
Interest accrued 11.04 7.79 4.51 120
Payment (on due date) 397.43 397.43 397.43 143.73
End-of-month balance 925.09 545.35 142.53 0
Lower-Interest Card
Month 1 2 3 4 5 6 7 8 9 10
Principal 475 475 475 475 221.30
Interest accrued 2.57 2.57 2.57 2.57 1.20
Payment (on due date) 2.57 2.57 2.57 256.27 222.50
End-of-month balance 475 475 475 221.30 0
1) How long does it take to pay off the higher-interest card?
2) What is the amount of the last payment on the higher-interest card? Why?
3) At the end of the month that you pay off the higher-interest card, after you have started to pay down your debt on the lower-interest card, what is the balance of the lower-interest card? Why?
Complete the following two tables to help you answer questions 4–5.
4) Rework the problem so that you pay off the lower-interest card first.
5) How much money do you save by paying off the higher-interest card first?
Lower Interest Card (Payoff Option)
Month 1 2 3 4 5 6 7 8 9 10
Principal
Interest accrued
Payment (on due date)
End-of-month balance
Higher Interest Card
Month 1 2 3 4 5 6 7 8 9 10
Principal
Interest accrued
Payment (on due date)
End-of-month balance
Be sure to include in your response:
• All parts of the tables are complete and calculations correct
• The answers to the additional questions
