Question

During your university career you were a frivolous spender and have racked up some credit card debt.  

You have the following balances owing:

RBC Rewards $5,128.  Minimum payment of $55/ month.  18% APR

BMO Visa $4,685.  Minimum payment of $75 / month.  21% APR

TD Visa $4,399.  Minimum payment of $100 / month.  15% APR

All credit cards compound interest daily.  

After taking ADMS3541 you decide to take control of your finances and create a plan to repay all debts.  You have determined that you can afford to allocate $500 a month towards all debt.  

Show your plan to repay all three cards in the shortest amount of time possible, at the lowest cost.  Show all calculations, including the total amount paid, total interest, and total time to repay.   

Answer 1

RBC Reward:

Monthly interest Rate= (1+18%/365)^30-1=1.49%, PMT=$500, PV=5128, nper=?

Hence, you will repay all your debt in 11.21 month i.e. 11 month(Approx)

Total Amount paid=500*11=5500

and interest paid=5500-5128=$372 (Approx)

Similarly for BOM Visa:

Here debt will be repaid in 10.31 month i.e. in 10 month (Approx)

Total amount paid= 500*10=$5000

and total interest paid= 5000-4685=$315

For TD Visa:

Here, all debt will be repaid in 9.37 month i.e. in 9 month.(Approx)

Total amount paid=9*500=$4500

Total interest paid=4500-4399=$101

Overall all your debt will be repaid within 1 year.