Answered

Frank has four different credit cards, the balances and interest information of which are outlined in the table below. As Frank was developing a debt payment plan, Rick suggested that he pay off the credit cards beginning with the highest interest rate, working his way down. If Frank chooses to follow Rick's advice, in what order should Frank plan on paying off his credit cards?




Credit Card		BalanceAPR

A		\$2,38019\%

B		\$4,50015\%

C		\$1,58017.50\%

D		\$90021\%





AD, A, C, B
BD, A, B, C
CA, D, C, B
DA, C, D, B

Verified Answer :

  • List the APR for each credit card: A=19%, B=15%, C=17.50%, D=21%.
  • Compare the interest rates in descending order: 21% > 19% > 17.50% > 15%.
  • Assign the order of repayment based on this ranking: D, A, C, B.
  • Select the matching choice: \(\boxed{a}\).

Explanation

  1. Analyzing Credit Card Data

To determine the correct order for Frank to pay off his credit cards according to Rick's advice, we need to rank the Annual Percentage Rate (APR) of each credit card from highest to lowest.

The data provided for the credit cards is:

  • Credit Card A: Balance \(\$2,380\), APR \(19\%\)
  • Credit Card B: Balance \(\$4,500\), APR \(15\%\)
  • Credit Card C: Balance \(\$1,580\), APR \(17.50\%\)
  • Credit Card D: Balance \(\$900\), APR \(21\%\)
  1. Ranking the APRs

We list the APRs for each credit card to compare them:

  • Card D: \(21\%\)
  • Card A: \(19\%\)
  • Card C: \(17.50\%\)
  • Card B: \(15\%\)

Comparing these values in descending order, we have \(21\% > 19\% > 17.50\% > 15\%\). This corresponds to the following sequence of cards: D, A, C, B.

  1. Conclusion

Based on our ranking of the APRs, the correct order for paying off the credit cards, starting from the highest interest rate, is:

  1. Credit Card D (\(21\%\))
  2. Credit Card A (\(19\%\))
  3. Credit Card C (\(17.50\%\))
  4. Credit Card B (\(15\%\))

This matches choice 'a' in the provided list. Therefore, Frank should pay off the cards in the order D, A, C, B. The final answer is \(\boxed{a}\).

Examples

Understanding how to prioritize debt repayment is crucial for financial health. By focusing on the debt with the highest interest rate (the APR), you minimize the total amount of interest that accumulates over time. This strategy, often called the "avalanche method," is a common and efficient way to pay off multiple debts faster and save money. For example, if you have several loans, paying off the one with the highest rate first ensures that your money works as efficiently as possible to reduce your overall debt burden.

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