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 :

  • Identify the APR for each credit card: Card A (19%), Card B (15%), Card C (17.5%), Card D (21%).
  • Compare the APRs to rank them from highest to lowest: 21% > 19% > 17.5% > 15%.
  • Match the ranked interest rates to the card labels: D, A, C, B.
  • Select the matching option, which is \(\boxed{a}\).

Explanation

  1. Data Analysis and Strategy

The objective is to rank Frank's credit cards by their Annual Percentage Rate (APR) from highest to lowest, following Rick's debt payment suggestion. The data provided for the credit cards are as follows:

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

The strategy is to compare these four percentages and organize them in descending order to determine the correct payment sequence.

  1. Ranking the Credit Cards

Comparing the provided APR values:

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

Arranging these values from highest to lowest gives the order: \(21\% > 19\% > 17.50\% > 15\%\).
Corresponding to the credit cards, the order is D, A, C, B.

  1. Finalizing the Answer

Based on the calculated ranking (D, A, C, B), we compare this sequence to the provided options:

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

The sequence matches option (a). Thus, Frank should pay off his credit cards in the order D, A, C, B. The final answer is \(\boxed{a}\).

Examples

Understanding how to prioritize debts by interest rate is a critical personal finance skill. When you have multiple loans or credit card balances, paying off the debt with the highest interest rate first, often called the "avalanche method," reduces the total amount of interest that accumulates over time, saving you money in the long run. By ranking debts by their APR, such as comparing 21% interest versus 15% interest, you ensure that the most expensive debt is tackled first, making your repayment plan more efficient.

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