You owe $1,534.09 on a credit card that has an interest rate of 15.7% APR. You decide to put $250.00 into a savings account earning a 3.5% APR and another $500.00 toward the credit card at the beginning of the month. What is the difference in interest saved at the end of a full month between this decision and if you had paid the entire $750.00 toward the credit card? Round any decimals to the nearest penny.
First, calculate the interest saved by putting $500 toward the credit card.
Interest saved on credit card = $500 * 15.7% / 12
Interest saved on credit card = $78.50
Now, calculate the interest earned on the savings account with $250.
Interest earned on savings account = $250 * 3.5% / 12
Interest earned on savings account = $0.73
The total interest saved by putting $500 toward the credit card and $250 into the savings account is:
Total interest saved = $78.50 + $0.73
Total interest saved = $79.23
If you had put the entire $750 toward the credit card, the interest saved would have been:
Interest saved if $750 toward credit card = $750 * 15.7% / 12
Interest saved if $750 toward credit card = $98.44
Therefore, the difference in interest saved by putting $500 toward the credit card and $250 into a savings account is:
$98.44 - $79.23
$19.21
The difference in interest saved is $19.21 at the end of a full month.