Loan Consolidation:

Check out this great opportunity! ABC, a loan consolidation company, offers you a line of credit that consolidates current debts and lowers your total monthly payment. You currently have $15,000 in debt with three loans, all charging an annual interest rate of 16% compounded monthly.

After looking at your current debt of $15,000, ABC offers to consolidate your debts, lower your annual interest rate to 11.25% compounded monthly, and lower your monthly payment to $141.86 as shown in table below.

Current Monthly Payment ABC Consolidation

Loan Type Loan Amount Monthly Payment Loan Type Loan Amount Monthly Payment

Bank cards. $4,000 $156.00 Auto loan. $9,500 $310.28 Store credit $1,500 $80.52

PAID OFF. NONE PAID OFF. NONE PAID OFF NONE

ABC $15,000 $141.86

a) How much money would this ABC offer save you each month?

b) How long will it take to pay off each of the three debts under the current plan?

Bank cards:

Auto loan

Store credit:

c) If you accept the ABC offer, how long will it take to pay off the full balance?

d) If you accept the ABC offer, how much money will still be owed 10 years from now?

e) By the end of the 10 years, how much money would you have paid towards the ABC loan? Explain what has happened to this money.

f) With the interest rate that ABC is offering, how much would the monthly payment have to be to have the debt completely paid in 10 years?

g) What is the best way to pay off your loans? Explain your choice.