University Of Phoenix Material Using Consumer Credit Workshe

University Of Phoenix Materialusing Consumer Credit Worksheetassignmen

Using Consumer Credit Worksheet Purpose: The Using Consumer Credit Worksheet is designed to test a student’s understanding of credit card interest rates and how to use credit calculations for various purchases. 1. Calculate the following using the Bankrate calculator at: Credit Card Balance Interest Rate Minimum/Fixed Payment Number of Months to Pay in Full Total Interest Paid $5,% Minimum $5,% Minimum $2,% Fixed $50 $2,% Fixed $100 · Minimum in this example should be Interest plus 1% of balance, and it will then default to a $15 minimum. 2. When making the minimum payment, how much more interest do you pay when the interest rate is 18% rather than 13%? 3. In the fixed rate example, how much would you save by doubling the fixed payment to $100 a month instead of $50 per month? 4. Assume you have a friend who is making the minimum monthly payments on a credit card. Your friend asks your thoughts on what he is doing. Based on these calculations and what you have learned, how would you advise your friend about making only minimum payments? Your response should be at least 100 words. 5. Calculate the cost of credit using the following formulas. Show your calculations. Simple Interest : You borrow $2,000 for car repairs. The interest rate is 5%, and you will pay it in full one year later. Simple Interest on the Declining Balance : You borrow $2,000 for car repairs. The interest rate is 5% and you will make two equal payments over a year (for example, half in January, and half in July) Answer each of the following questions in 50-100 words each: 6. Grayson just received his credit card statement. He noticed a charge for $40 to a store he has never patronized. What steps should he take to handle this? 7. List the advantages and disadvantages of using credit. Provide at least two of each. Home Buying 1. Complete the “Buy or Rent†calculator using your own data. In 50-100 words answer the following: What was the recommendation? What were the factors that led to that recommendation? Do you agree or disagree with the recommendation? Why? 2. In a minimum of 100 words, explain the main benefits and drawback of renting and of owning a home? 3. Review Exhibit 7-4 on page 224 of the textbook. In at least 100 words, summarize the steps in the home-buying process. 4. Review Exhibit 7-6 on page 229 of the textbook. Estimate the affordable monthly mortgage payment, the affordable mortgage amount, and the affordable home purchase price for the following situation. Show your calculations. · Monthly gross income: $2,950 · Other debt, monthly payment: $160 · Down payment to be made: 15% of purchase price · Monthly property tax and insurance: $210 · 30 year mortgage at 6% Enter your calculation and response in this column Step 1: Determine the monthly gross income (annual income divided by 12). Step 2. Multiply step 1 by 33% for a PITI (principal, interest, taxes, and insurance) guideline. NOTE: With a down payment of at least 5% lenders use 33% of gross income as a guide for PITI (principal, interest, taxes, and insurance) Step 3. Subtract other debt payments from the result of Step 2 to determine the Affordable Monthly Mortgage Payment. Step 4. Divide the result of Step 3 by 6.00 (this is the mortgage payment factor from Exhibit 7-7 based on a 30 year loan at 6%) and then multiply this by $1,000. This is the Affordable Mortgage Amount. Step 5. Divide the affordable mortgage amount by .85 (This is 1 minus the down payment percentage) to determine the Affordable Home Purchase. Car Buying 1. Review Exhibit 6-2 on page 196 of the textbook. In at least 100 words, summarize the steps in the car-buying process. 2. Using the framework on page 199, prepare a financial comparison of buying and leasing a car with a cash price of $24,000. Show your calculations. Enter your calculation and response in this column. Step 1. Total down payment Step 2. Total cost of payments: Multiply the Monthly Loan Payment by the Length of the Loan Step 3: Identify the opportunity cost of the security deposit: Multiply the Security deposit by the Length of the Loan by 3% Step 4. Add the result of Step 1, 2 and 3. Step 5: To determine the total cost of buying subtract the Value of the vehicle at the end of the loan from the result of Step 4. Enter your calculation and response in this column. Complete the chart below to calculate the cost of leasing a car. · Security deposit (to lease): $1,200 · Monthly lease payment: $440 · 48 month loan and lease · End-of-lease charges: $600 Steps to Leasing a Car taken from “Figure it Out†on page 199. Enter your calculation and response in this column. Step 1. Multiply the Monthly Lease Payment by the Length of the Lease Step 2: Identify the opportunity cost of the security deposit: Multiply the Security deposit by the Length of the Lease by 3% Step 3. To determine the total cost of leasing add the results of Step 1 and 2 to the End-of-Lease Charges FP/120 WEEK 3 QUIZ 1. Which of the following is NOT a valid reason for borrowing? Purchasing a new dishwasher Paying for everyday living expenses Buying a car to start a new job Paying for a medical emergency 2. Which of the following electronically subtracts money from your savings or checking account to pay for goods and services? A credit card Closed-end credit A debit card A gift card 3. Tanya received a $1,000 loan from the bank for a vacation. The bank is using the simple interest formula for this one-year, 9% loan. What is her total interest? $9 $45 $90 $1, 4. The expected value at the end of a lease is called the Invoice price Sticker price Capitalized cost Residual value 5. Which of the following is a disadvantage of renting? Renters have fewer responsibilities than home owners. Tenants cannot take tax deductions for mortgage interest and property tax. Renters usually do not have to be concerned with maintenance and repairs. Taking possession of a rental unit is less expensive than buying a home. 6. What should a home buyer consider when evaluating a house? Zoning laws School system Property values of the community All of these should be evaluated. 7. This type of financial aid typically does not need to be repaid Pell grants Scholarships Employer tuition benefits All of the above 8. A temporary postponement of student loan payments is Reduction Consolidation Deferment Forgiveness

Paper For Above instruction

The comprehensive nature of this assignment requires an understanding of various financial principles related to credit, home ownership, vehicle purchasing, and student loans. This paper will explore each component thoroughly, demonstrating knowledge through calculations, analysis, and critical thinking. The discussion starts with credit card interest rates and payment strategies, detailing how minimum payments prolong debt and increase total interest paid. Next, it considers the implications of different interest rates—specifically comparing 13% versus 18%—highlighting the additional costs incurred with higher rates. The advantages of increasing fixed payments are examined through savings calculations, emphasizing the benefits of accelerated debt payoff.

Advising a friend who makes minimum payments involves understanding the long-term financial consequences, particularly how such practices lead to significant interest accumulation and extended debt duration. It is crucial to communicate that while minimum payments seem manageable initially, they result in paying much more over time and delay wealth accumulation. Therefore, encouraging debt repayment strategies that favor higher payments can substantially reduce interest costs and shorten debt periods, improving financial health.

The cost of credit calculations involves simple interest and declining balance interest formulas. For example, borrowing $2,000 at 5% interest yields $100 in interest over one year using simple interest. When payments are split into two equal installments, interest is calculated on the declining balance, resulting in slightly lower total interest due to reduced principal over time. These calculations illustrate how different repayment structures impact total interest expenses and demonstrate the importance of understanding interest accrual methods for effective financial planning.

Handling unauthorized charges, as in Grayson’s case, requires prompt action: disputing the charge with the credit card issuer, reviewing account statements thoroughly, and possibly filing a police report if fraud is suspected. Protecting personal information and monitoring credit reports regularly are preventive measures to avoid future fraud.

The advantages of credit include establishing credit history, convenience, and access to rewards, while disadvantages involve potential debt accumulation, high interest costs, and the risk of overspending. Responsible use of credit involves understanding these pros and cons and exercising discipline to avoid financial distress.

In the context of home ownership, decision-making tools like the "Buy or Rent" calculator assist individuals in evaluating financial feasibility. For instance, the recommendation often depends on comparing total costs over time, considering factors like property appreciation, maintenance costs, tax benefits, and personal stability. A homeowner might prefer buying for long-term stability and building equity, whereas renting could be advantageous for flexibility and lower initial costs.

The main benefits of owning a home include equity accumulation, stability, and tax advantages, but drawbacks involve maintenance responsibilities, market risks, and high upfront costs. Renting offers flexibility and fewer responsibilities but lacks equity growth and potential tax benefits. The home-buying process typically includes steps such as financial assessment, house hunting, making an offer, inspections, securing financing, and closing the deal.

Calculations for determining affordable mortgage payments, mortgage amounts, and home purchase prices involve analyzing gross income, subtracting debt obligations, and applying standard lending guidelines. For example, with a gross income of $2,950 and other debt of $160, multiplying the gross income by 33% gives a baseline for monthly housing expenses. Deducting existing debt provides the maximum mortgage payment capability, which is then used to calculate the loan amount and affordable home price based on mortgage interest rates and down payment percentages.

Car buying decisions benefit from a detailed comparison of purchasing versus leasing, considering total costs, opportunity costs, and end-of-lease charges. For purchasing, costs include down payments, monthly payments, and depreciation, while leasing involves recurring lease payments and end-of-lease fees. Calculating the total costs over the lease or loan period helps individuals determine the most economical choice based on their financial situation.

In summary, understanding credit management, housing options, vehicle financing, and student loans is essential for making informed financial decisions that promote stability and growth. Proper calculations, awareness of costs, and strategic planning enable consumers to optimize their financial health and achieve their personal and economic goals.

References

• Bankrate. (2023). Credit Card Calculator. https://www.bankrate.com/calculators/credit-cards/credit-card-interest-calculator.aspx
• Investopedia. (2023). Simple Interest and Compound Interest. https://www.investopedia.com/terms/s/simpleinterest.asp
• Federal Deposit Insurance Corporation (FDIC). (2022). Advantages and Disadvantages of Using Credit. https://www.fdic.gov/consumers/consumer/moneysmart/credit/advantages-disadvantages.html
• U.S. Department of Housing and Urban Development. (2022). Buying a Home: The Homebuying Process. https://www.hud.gov/topics/buying_a_home
• National Association of Realtors. (2023). Steps in the Home Buying Process. https://www.nar.realtor/buyers-and-sellers/home-buying-process
• Freddie Mac. (2023). How to Calculate Mortgage Payments. https://www.freddiemac.com/learn/mortgages/how-to-calculate-mortgage-payments
• Experian. (2022). How to Dispute a Credit Card Charge. https://www.experian.com/blogs/ask-experian/how-to-dispute-credit-card-charge/
• Kelley Blue Book. (2023). Leasing vs Buying a Car. https://www.kbb.com/shopping-tools/leasing-vs-buying/
• Consumer Financial Protection Bureau. (2022). Student Loans: Deferment, Forgiveness, and Consolidation. https://www.consumerfinance.gov/consumer-tools/student-loans/
• There are numerous financial literacy resources online that assist in understanding the nuances of credit, loans, and housing options, essential for making informed personal financial decisions.