Finance Assignment: Analysis of Credit Card Debt Scenario

The assignment analyzes a credit card debt scenario involving a $10,000 furniture purchase with a 5-year interest-free period, followed by 17% APR and 2% monthly payments. The student calculated the total repayment period (62 years and 8 months) and the total cost of the furniture ($32,471.15) including the interest paid ($22,471.15). The student suggests strategies to reduce the cost, such as making payments during the interest-free period. The assignment also explores the impact of additional credit card charges on the repayment timeline and total cost. The solution demonstrates the application of financial principles, using an Excel-based analysis to model the debt repayment and evaluate different financial strategies.

DISCRETE MATH
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How many years did it take to pay off the debt?
- It took 62 years and 8 years to pay off the debt for furniture.
How much did you actually pay for the furniture?
- The amount actually paid for furniture was $32,471.15
How much interest did you pay?
- Interest paid for furniture purchase was $22,471.15
There are times when everyone needs to borrow money. Assuming that the loan was
necessary, identify at least 2 strategies that would have helped lower the total amount
paid for this furniture.
- In case of debts the person taking loan should plan his financing activities in such a way as
to minimize his interest cost. In the given case we could have opted for few other strategies
which would have helped us reduce the cash outflow:
 The initial period of five years is interest free period. This means no interest would
be charged on any sum up to five years. We could have benefitted from this option
by repaying the major part of the loan in this period. Repaying the loan in the
interest free period helps to reduce the major loan part which results in lower
interest cost in the future. If we would have opted for this then the loan would have
been repaid in 51 years and 5 months, the outflow would have been $ 16665.54 and
interest cost would have been only $6665.54.
 In order to utilize the benefits of loan; the repayments made should be higher in the
initial period. Paying off the major part of principle in initial periods helps to
reduce the loan period and also helps in lower interest costs.
Suppose you had decided to add more charges to the credit card before or even while
trying to pay off this furniture purchase? Copy the first few lines of your existing work
onto a second worksheet and experiment by adding what you think is a typical monthly
expenditure (and it does not have to be the same amount each month). Complete 12 – 24
months. What observations can be made?
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- If monthly expenses are added to the credit card, we can see that the outstanding amount
increases which results in higher interest expense and higher pay back period of the initial
loan amount.
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