You have credit card debt of $25,000 that has an APR (monthly compounding) of 15%. Each month you pay the minimum monthly payment. You are required to pay only the outstanding interest. You have received an offer in the mail for an otherwise identical credit card with an APR of 12%. After considering all your alternatives, you decide to switch cards, roll over the outstanding balance on the old card into the new card, and borrow additional money as well (assuming that the new card has sufficient debt capacity). How much can you borrow today on the new card without changing the minimum monthly payment you will be required to pay?
Credit card debt: $25,000
APR (1): 15%
APR (2): 12%
Periods per year: 12
Calculate the monthly interest rate of the current credit card.
Calculate the interest payment on the current credit card.
Calculate the monthly interest rate of the new credit card.
Calculate the additional borrowing that you can make do switching to the new credit card.