Question

Credit Cards Worksheet redit cards are plastic cards that allow users to make purchases using borrowed money. There can also be fees and interest payments that you need to be aware of 1. Look at the credit card offers below, and pick the one that you believe is best. Explain your answer. Card #1-Has a $500 limit. There is a $20 annual fee. The interest rate is 12%. There is a late fee of SS if your payment is late. There is an overdraft fee of $30 if you go over your limit. Card #2-Has a $300 limit. There is no annual fee. The interest rate is 15%. There is a late fee of $10 if your payment is late. There is an overdraft fee of $20 if you go over your limit. Card #3-Has a $400 limit. There is a $10 annual fee. The interest rate is 10%. There is a late fee of $15 if your payment is late. There is an overdraft fee of $15 if you go over your limit. There are benefits and drawbacks to using a credit card. One benefit is that a credit card is easy to 2. use if you are making a purchase online. If you don't have a credit card, what are some alternatives that you have for making purchases? 3. A drawback of a credit card is that you can spend too much very easily. What are some ways to prevent overspending? 4. List one other benefit, and one other drawback, of using a credit card.

Answer 1

To compare the credit card we can compare to different price point of using it and check the cost. which one making a benefit we should go for that.

Price point $100 and $1000 with late payment

Card #1: For $100 : Total Cost: 20 (Annual Fee) + 12 (Interest Rate) + 5 (late fee) + 0 (over draft) = 100 + 37 = $137

For $1000: Total Cost: 20 (Annual Fee) + 120 (Interest Rate) + 5 (late fee) + 30 (over draft) = 1000 + 175 = $1175

Card #2: For $100 : Total Cost: 00 (Annual Fee) + 15 (Interest Rate) + 10 (late fee) + 0 (over draft) = 100 + 25 = $125

For $1000: Total Cost: 00 (Annual Fee) + 150 (Interest Rate) + 10 (late fee) + 20 (over draft) = 1000 + 130 = $1130

Card #3: For $100 : Total Cost: 10 (Annual Fee) + 10 (Interest Rate) + 15 (late fee) + 0 (over draft) = 100 + 35 = $135

For $1000: Total Cost: 10 (Annual Fee) + 100 (Interest Rate) + 15 (late fee) + 15 (over draft) = 1000 + 140 = $1140

From the above it is clear to go with Card #2. Less cost, more benefit.

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Alternative to credit card:

1. Gift cards can be purchased using cash or borrowed money.

2. Prepaid debit cards have made in to the market these days, behave similar to credit cards.

3. ePayment market is making a havoc these days, making it a best alternative to credit cards.

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Overspending is easy, well it is not that tough to avoid. It can not be stopped at once but can be reduced to a significant amount.

1. Identify the area where you are overspending e.g. apparel, food, cosmetics, etc.

2. Make a budget for spending every month and divide it in the areas of overspending. Ensure you are meeting that target of not crossing the limits. Do not make it too low so that on the next month you are overspending again.

3. Going for spending, just wait for one hour when you are about to make a purchase, if you made it wait for one day, in case you achieve that also wait for one more day. If you can wait for these many days without buying the product it is not worth buying it.

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Credit card using:

Benefit: You have an emergency, you ran out of money it can save you. e.g. You lost / broke your smart phone.

Drawback: Getting into a trap of spending when you have no real balance. And it is satisfying to most of the people which is insignificant, just compare the reducing amount on your pay check from the credit card bills, you will realize that.

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Hope you find the calculations right. Thumbs up for the answer in case you find it helpful.