1. Benefits and Costs
Credit is convenient, but it does come with a cost. You need to pay back whatever you borrowed—usually called principal—plus the interest amount, which adds up each month. This section gives you information to help you decide when you might use credit—especially credit cards.
a. Explain the Advantages and Disadvantages of Using Credit.
We’re using Credit whenever we receive goods and services in exchange for the promise of future payment for those goods and services. Like many things in life, credit has its advantages and disadvantages. On one side, credit can be good:
- Credit enables people to buy things, such as cars or homes, which it could otherwise take years to save to buy.
- Credit allows people to make an unexpectedly large payment, such as a car repair or medical bill.
- Some credit cards allow you to stop payment for unacceptable, falsely advertised, or undelivered products purchased by mail order or Internet.
The downsides to credit can threaten your financial health, so they should serve as cautions to those of us concerned about controlling budget:
- Credit can add fees and interest to our purchases.
- Credit encourages some of us to overspend because it’s very easy to lose track of our spending.
- Credit can lead us to believe we will have money to repay debt in the future when we really don’t know that for sure.
- Overspending can lead to debt problems—and even bankruptcy—when payments to creditors exceed our ability to repay.
Directions: Check whether the item is an Advantage or a Disadvantage of using credit