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Credit - Head Matters


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.

Exercise: Pros and Cons of Credit?

Directions: Check whether the item is an Advantage or a Disadvantage of using credit

  Advantage Disadvantage
1. By simply having a credit card available, a person is likely to spend 34% more than he or she might otherwise spend.
2. Credit can allow you to take advantage of sales when you lack cash to make purchases.
3. Credit can provide cash for emergencies, such as paying to repair a car.
4. Credit can be used for an investment, such as a house.
5. Credit is not free. Borrowers must pay extra for the use of borrowed money.
6. When you are making credit payments, you don't have money for other things that come up.
7. Debts can take months - even years - to repay.
8. Excessive credit use and late payments will damage your credit history which may prevent you from getting insurance or even a job.
9. Using a credit card helps with conflicts with merchants about defective merchandise because you can ask the credit card company to help with disputes.
10. Often, a credit card is necessary to make purchases by telephone or over the Internet.
11. Usually, a credit card is safe and more convenient than carrying cash.
12. You can use the item -such as a car- before you have the cash to pay for it. The item could also be used for getting and commuting to a job
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