Credit cards, Debit Cards and Credit score
Credit cards (usually plastic) assures a seller that the person using it has a satisfactory credit rating and that the issuer will see to it that the seller receives payment for the merchandise delivered. These are used to make payment in retail shops or stores present online. Credit cards are usually issued by banks or other entities approved by government. VISA and MasterCard are two prominent examples of bank-issued general purpose credit cards. On the other hand, many nonbank companies can also issue credit cards such as Discover, American Express, and Diners Club. Credit cards have many advantages such as the ease of use in making payments, provision of financial backup in case of emergency, payment of items in monthly installments, and they can also help in keeping a record of expenses. On the other hand, their disadvantages include spending more money than required, chances of increase in debt load, and possibility of credit card fraud. Stores and merchants usually accept credit card payments as they want to increase customers’ trust with the help of approved credit card brands. It is also helpful in improving the cash flow. Credit card payment can also remove the chances of accepting bad checks.
Credit cards have interest rates so that borrowers (debtors) pay interest for the money they borrow. Interest is usually expressed as annual percentage rate (APR), i.e. payment over the course of year, but some credit cards takes interest on daily basis. Suppose, a person has a revolving balance of $1,000 on his credit card and his interest rate is 10% monthly. On first month, his debt will be $1100, while the second month he will have to pay 10% interest on the new amount, i.e. $1100, and his debt will increase to $1210. So, in this form of compound interest debt grows exponentially.
A cash advance is a loan taken from a credit card with the help of ATM or a bank withdrawal. It is not a usual credit charge, and the person has to pay it back as soon as possible. Interest rate is significantly high, and a transaction fee is also charged. A cash advance fee is an amount of money charged on customer for accessing the cash credit line through an ATM.
Credit card is prone to identity theft and fraud. It can occur when someone gets personal information such as Social Security number or credit card data, and tries to commit a fraud.
Debit card is a card (usually plastic) that enables the holder to withdraw money or to have the cost of purchases charged directly to the holder’s bank account. Debit card is also known as bank card. For a debit card to work, it is important to have some money in the bank account, so that the cardholder can pay the required amount. So, it is important to have a bank account to get a debit card. Debit card has some advantages such as the ease of payment, less time to complete a purchase, remaining within the budget, easier to get as compared to a credit card, and easy to get cash. On the other hand, debit card has some disadvantages such as no free borrowing period, extra charges by some banks, and difficulty in resolution of disputed charges. Debit cards may include MasterCard, Visa, and Maestro, and these are issued by a government authorized financial institution such as bank.
Credit score is the numerical expression calculated by the responsible lenders to check the creditworthiness of the person, when he or she applies for credit. Credit score is usually calculated by financial institutions and credit bureau of the respective country. It is better to have a high score as people with high score are usually considered as having lower risk. Those people have more chances of getting credit, even at better rates. However, credit scores can change as a result of different events such as bankruptcy and late payments. Usually, late payments and bankruptcy result in lowering of credit scores. On the other hand, keeping a card active, reducing the debt, and raising the individual card limits can help in raising the credit scores. People can see their credit score or rating through the information in credit bureau file.
Question # 1:
Expected Payoff time is 134 months.
$6,976 is the total interest to pay over the life of the debt.
Question # 2:
Expected Payoff time is 59 months.
$483 is the total interest to pay over the life of the debt.
Question # 3:
Question # 4:
Question # 5:
a - $2850
b - $2250
c - $2200