Garth was amazed to hear that his friend Lindsey always pays off her credit card

Question

Garth was amazed to hear that his friend Lindsey always pays off her credit card at the end of each month. Garth just assumed that everyone used credit cards the same way, he does--buy now; pay later. He buys almost everything he needs or wants, including clothes, food, and entertainment with his card. When Lindsey asked him about the APR for his card, he didn't have a clue. He also didn't know the length of grace period or how his minimum monthly payment was calculated. When Lindsey asked about this, Garth replied that it didn't really matter because he never paid off his balance like she did. Garth reasoned that his credit card made purchases easier by allowing him to buy expensive items--that he couldn't otherwise afford--by paying minimum monthly payments. Over all Garth thinks that he is a responsible credit user, but he admits that over the past two or three years, he has been late making a few monthly payments and, once or twice, has gone over his limit. He also uses his card regularly to obtain cash advances. After hearing all of this, Lindsey is worried about her friend. She has come to you for help in answering the following questions.

1. What type of credit user is Garth? Based on your answer, what is the number one factor that should influence Garth's choice of a credit card?

2. Garth recently received a credit card offer from the KPF Bank. This credit card features a two-cycle daily balance method of calculating interest, a no annual fee option, and a six-month introductory APR of 9.9 percent that eventually goes up to 18 percent. What other information should Garth review in the Schumer box? Should Garth take this credit card offer? Why or why not?

3. JoJo Smith, Garth's second cousin, suggested that Garth should obtain a secured credit card or better yet a Titanium card. Do you agree with JoJo? Why or why not?

4. Based on what you know about Garth, what kind of additional fees and penalties is he most likely to encounter? What is the impact of these fees and penalties on Garth?

5.Explain the differences in credit card interest rates when described as a fixed, variable, teaser, or penalty rate. How do these different rates affect the cost of using a credit card?

6. What factors should Garth consider if he decides to transfer his current card balance to another card?

7 Much to his surprise, Garth was recently rejected on his latest credit card application. What actions, if any, should he take?

8. How long will it take Garth to pay off the outstanding balance on his card ($3,000) if he pays $150 per month with an APR of 18 percent and does not make any additional purchases?

9. Is Garth correct in thinking that one advantage of using credit is that it allows him to make expensive purchases today and pay for them tomorrow? If you agree, what is the opposite side of the argument?

10. What advice would you give Garth if he has trouble paying his credit card bill in the future?

Explanation / Answer

1. Garth uses instant credit cards for paying off bills. while Lindsey pays with the monthly one. Lindsey's card allows her to make payments with the help of interest that she is generating and hence she never falls short with money.this is key difference to be noted. 2. she should! because it changes the interest rate that will create initial losses but will award a lot eventually. 3.i agree! because secure cards help you plan you money well 4.garth will have to pay the bills and since he pays instantly, she doesnt have interest for excess payments!hence the loss 5.different interest rates affect the instalments. it depends on consumer to choose baised on their necessitites. 6.factors of risk, bills and uncertainities. 7.he should talk to manager and should also be accompanied by close alliby of her financial security 8. 8 months 9.i agree! opposite side will be interest value arguement 10.i will advice him to invest wisely in bonds and in real estate firms who have high return rates.

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