Scenario: You have received a letter from a credit card company offering you a c

Question

Scenario: You have received a letter from a credit card company offering you a credit card with a limit of $5,000 at an introductory interest rate of 5%. What additional information do you need in order to make a decision whether to accept this offer? List specific characteristics you need to consider and why you think they are important. What factor(s) would cause you to accept this offer? What factor(s) would cause you to decline this offer? Be specific and thorough in your response. If you accept the offer, how will you manage your credit card debt?

Explanation / Answer

For the credit card offer , I shall need the following additional information;

The rate is per month or per year ?

Is the amount of credit offered sufficient for my requirement?

The periodicity of compounding the interest.

What will be future interest rate after initial offer period?

Is there any joining fee ? what is the amount.

Is there any annual fee ? what is the amount?

Theeffective average credit period (the billing cycle )

Whether there is any penaltyfor late or default in payment , what is the penalty amount?

What are the interest rate , compounding periodicity and penalty clause offered by other competitive cards in the market?

Is there availability of converting the purchase into EMI and if it is there at what interest rate?

Is there any customer loyalty addition like payback etc and if it is there , the details and the companies associated with the scheme.

In the following conditions I shall accept the offer of the credit card;

The card interest rate is competitive in the market.

The credit offered is sufficient for me.

The compounding periodicity is standard as per market norms.

The interest after the initial offering period will be competitive and known to me.

Preferably no or minimal joining and annual fees.

The penalty clause is moderate and there is some allowance for a few days before interest and penalty is charged after default in payment.

Favorable options for converting purchase into EMI and good payback scheme with large no of commercial establishments.

I shall not accept the offer in the following conditions ;

The effective interest rate is not competitive and the rate after initial offering period is higher than market rate.

The compounding periodicity is unfavorable compared to market.

Average credit days are lesser than market norms.

The penalty for default in payment is too harsh and not favorable copared to market norms.

The joining and annual fees are more than market norms.

No facility for converting purchase into EMI and payback points .

I shall manage the credit card debt in the following way ;

Definitely pay the amount due within due date to avoid interest and penalty.

Avoid conversion of purchase into EMI as far as possible unless unavoidable.

Keep the overall purchase within limit which can be paid within due date . A good judgment of cash liquidity position in next 60 days is important.

Intelligently using credit card to get the maximum credit period without interest ( keeping billing cycle in mind).

Negotiate for waiving annual fees after a period of good payments in time.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.