Having maxed out one credit card, the consumer is tempted by an offer of a second credit card (from another bank) at 24% APR with a $7500 limit. A service may pay off all the loans – say $25,000 worth so that the consumer now only has one debt to pay – the one to the consolidation service. The difference is that they may now only pay 12% APR (1% a month) so that instead of paying $500 a month (2% of $25,000) to simply pay the interest, they will be able to pay off the loan. a. How many months will it take to pay off the $25,000 loan at $500 per month at 12% APR compounded monthly? b. When the loan is paid off, how much interest has gone to the Debt Consolidation Service?
Having maxed out one credit card, the consumer is tempted by an offer of a second credit card (from
another bank) at 24% APR with a $7500 limit.
A service may pay off all the loans – say $25,000 worth so that the consumer now only has one debt to pay – the one to the consolidation service. The difference is that they may now only pay 12% APR (1% a month) so that instead of paying $500 a month (2% of $25,000) to simply pay the interest, they will be able to pay off the loan.
a. How many months will it take to pay off the $25,000 loan at $500 per month at 12% APR compounded
monthly?
b. When the loan is paid off, how much interest has gone to the Debt Consolidation Service?
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