Advantages and disadvantages of consumer credit


Question:

In reviewing November's statement, she notices that her beginning balance was $600 and that she made a $200 payment on November 10. She also charged purchases of $80 on November 5, $100 on November 15, and $50 on November 30. She can't tell how much interest she paid in November because she spilled watercolor paint on that portion of the statement. She does remember, though, seeing the letters APR and the number 24%. Also, the back of her statement indicates that interest was charged using the average daily balance method including current purchases, which considers the day of a charge or credit.

Assuming a 30-day period in November, calculate November's interest using the average daily balance method. Also, calculate the interest Nancy would have paid with: a) the previous balance method, b) the adjusted balance method.

Going back in time, when Nancy was just about to open her account, and assuming she could choose among credit sources that offered different monthly balance determinations, and assuming further that Nancy would increase her outstanding balance over time, which credit source would you recommend? Explain.

Objective: Analyze the advantages and disadvantages of consumer credit.

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Finance Basics: Advantages and disadvantages of consumer credit
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