Sunday, May 5, 2024

Contest Results from 8/17/01 Email Newsletter
by Scott Bilker
Scott Bilker is the author of the best-selling books, Talk Your Way Out of Credit Card Debt, Credit Card and Debt Management, and How to be more Credit Card and Debt Smart. He's also the founder of DebtSmart.com. More about and DebtSmart can be found in the online media kit.

Scott Bilker

QUESTION: 
You have an outstanding credit card balance of $5,500 at 15.99% APR (fixed) and you're making payments of $99.87 per month. With those payments this loan will be paid off in exactly 100 months. You decide to save money by transferring this balance to an 9.99% APR (fixed) and keep making the same monthly payment of $99.87. The good news is that you can now pay off your loan in only 74 months! How much money do you save? Is it $2,596, $2,182, or $1,768?

ANSWER: $2,596 
Since the payment is kept constant, the total savings is equal to the number of payments not paid. It takes 100 payments to pay off the 15.99% loan and only 74 payments to pay off the 9.99% loan.

Therefore, you save 26 payments or 26 times $99.87, which is $2,596.62 when comparing the savings over a 100-month period.

It's important to recognize that you're really saving money THE ENTIRE TIME! The savings is relative to every point in time. In the problem I implied that you find the savings over the entire 100 month period, however, there are savings every month.

Let's compare both loans one month at a time. Before the first payment, each loan has an unpaid balance of $5,500. Total savings is zero. However, after the first payment is made, the balance remaining on the 15.99% loan is $5,473.42 and the balance for the 9.99% loan is $5,445.92. That means that you saved the difference, $25.50, after the first payment.

The 9.99% loan is paid off at payment number 74 which means its balance is zero. So what would you still owe on the 15.99% loan? That amount is $2,181.97.

From this point forward all the payments that would have been made to the 15.99% are saved because you have the 9.99% loan.


Month

15.99% loan balance

9.99% loan balance

Savings

0

$5,500.00

$5,500.00

$0.00

1

$5,473.42

$5,445.92

$27.50

2

$5,446.48

$5,391.38

$55.10

3

$5,419.19

$5,336.40

$82.79

4

$5,391.53

$5,280.95

$110.57

5

$5,363.50

$5,225.05

$138.45

6

$5,335.10

$5,168.68

$166.42

7

$5,306.32

$5,111.84

$194.48

8

$5,277.15

$5,054.52

$222.63

9

$5,247.60

$4,996.73

$250.87

10

$5,217.66

$4,938.46

$279.20

11

$5,187.31

$4,879.70

$307.61

12

$5,156.56

$4,820.45

$336.11

13

$5,125.40

$4,760.71

$364.69

14

$5,093.83

$4,700.48

$393.35

15

$5,061.83

$4,639.74

$422.10

16

$5,029.41

$4,578.49

$450.92

17

$4,996.56

$4,516.74

$479.82

18

$4,963.27

$4,454.47

$508.80

19

$4,929.53

$4,391.69

$537.85

20

$4,895.35

$4,328.38

$566.97

21

$4,860.71

$4,264.54

$596.17

22

$4,825.61

$4,200.17

$625.44

23

$4,790.04

$4,135.27

$654.77

24

$4,754.00

$4,069.83

$684.17

25

$4,717.48

$4,003.84

$713.64

26

$4,680.47

$3,937.30

$743.17

27

$4,642.96

$3,870.21

$772.76

28

$4,604.96

$3,802.56

$802.41

29

$4,566.45

$3,734.34

$832.11

30

$4,527.43

$3,665.56

$861.87

31

$4,487.89

$3,596.21

$891.68

32

$4,447.82

$3,526.27

$921.54

33

$4,407.22

$3,455.76

$951.46

34

$4,366.07

$3,384.66

$981.41

35

$4,324.38

$3,312.97

$1,011.41

36

$4,282.13

$3,240.68

$1,041.45

37

$4,239.32

$3,167.79

$1,071.54

38

$4,195.94

$3,094.29

$1,101.65

39

$4,151.98

$3,020.18

$1,131.80

40

$4,107.44

$2,945.45

$1,161.99

41

$4,062.30

$2,870.10

$1,192.20

42

$4,016.56

$2,794.13

$1,222.43

43

$3,970.21

$2,717.52

$1,252.69

44

$3,923.24

$2,640.27

$1,282.97

45

$3,875.65

$2,562.38

$1,313.27

46

$3,827.42

$2,483.84

$1,343.58

47

$3,778.55

$2,404.65

$1,373.90

48

$3,729.03

$2,324.80

$1,404.23

49

$3,678.85

$2,244.28

$1,434.57

50

$3,628.00

$2,163.10

$1,464.91

51

$3,576.48

$2,081.23

$1,495.24

52

$3,524.26

$1,998.69

$1,525.57

53

$3,471.35

$1,915.46

$1,555.89

54

$3,417.74

$1,831.54

$1,586.20

55

$3,363.41

$1,746.91

$1,616.50

56

$3,308.36

$1,661.59

$1,646.77

57

$3,252.57

$1,575.55

$1,677.02

58

$3,196.04

$1,488.80

$1,707.25

59

$3,138.76

$1,401.32

$1,737.44

60

$3,080.71

$1,313.12

$1,767.60

61

$3,021.89

$1,224.18

$1,797.72

62

$2,962.29

$1,134.50

$1,827.79

63

$2,901.89

$1,044.07

$1,857.82

64

$2,840.69

$952.90

$1,887.80

65

$2,778.67

$860.96

$1,917.71

66

$2,715.83

$768.26

$1,947.57

67

$2,652.15

$674.78

$1,977.37

68

$2,587.62

$580.53

$2,007.09

69

$2,522.23

$485.49

$2,036.74

70

$2,455.97

$389.66

$2,066.30

71

$2,388.82

$293.04

$2,095.78

72

$2,320.78

$195.61

$2,125.18

73

$2,251.84

$97.37

$2,154.47

74

$2,181.97

$0.00

$2,181.97

75

$2,111.18

-$99.87

$2,211.05

76

$2,039.44

-$199.74

$2,239.18

77

$1,966.74

-$299.61

$2,266.35

78

$1,893.08

-$399.48

$2,292.56

79

$1,818.44

-$499.35

$2,317.79

80

$1,742.80

-$599.22

$2,342.02

81

$1,666.15

-$699.09

$2,365.24

82

$1,588.48

-$798.96

$2,387.44

83

$1,509.78

-$898.83

$2,408.61

84

$1,430.03

-$998.70

$2,428.73

85

$1,349.21

-$1,098.57

$2,447.78

86

$1,267.32

-$1,198.44

$2,465.76

87

$1,184.34

-$1,298.31

$2,482.65

88

$1,100.25

-$1,398.18

$2,498.43

89

$1,015.04

-$1,498.05

$2,513.09

90

$928.69

-$1,597.92

$2,526.61

91

$841.20

-$1,697.79

$2,538.99

92

$752.54

-$1,797.66

$2,550.20

93

$662.70

-$1,897.53

$2,560.23

94

$571.66

-$1,997.40

$2,569.06

95

$479.40

-$2,097.27

$2,576.67

96

$385.92

-$2,197.14

$2,583.06

97

$291.19

-$2,297.01

$2,588.20

98

$195.20

-$2,396.88

$2,592.08

99

$97.93

-$2,496.75

$2,594.68

100

$0.00

-$2,596.62

$2,596.62

101

-$99.87

-$2,696.49

$2,596.62

102

-$199.74

-$2,796.36

$2,596.62

103

-$299.61

-$2,896.23

$2,596.62

104

-$399.48

-$2,996.10

$2,596.62

105

-$499.35

-$3,095.97

$2,596.62

106

-$599.22

-$3,195.84

$2,596.62

107

-$699.09

-$3,295.71

$2,596.62

108

-$798.96

-$3,395.58

$2,596.62

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