BUSN380 Week 3 Threaded Discussion â€“ Hazardous to Your Health & Credit Card Balances
BUSN380 Week 3 Threaded Discussion â€“ Hazardous to Your Health & Credit Card Balances
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BUSN380 Week 3 Threaded Discussion Hazardous to Your Health amp Credit Card Balances Using the Internet locate a source that identi es the number of personal bankruptcies that have occurred in the US during a relatively recent time period Locate and report the results of Internet or other sources that assess the role played by credit card debt in relation to personal bankruptcies declared According to Bloomberg Businessweek the rise in bankruptcy filings is largely attributable to the combination of rising consumer debt and low savings rates As consumers spend more and save less the potential for crippling debt rises significantly Moreover if consumers do start spending less this may have a negative impact on investments in business another key factor in economic recovery Poor consumer spending habits are further exacerbated by the shaky employment situation In one financial blog httDwwwthedi2eratilifecombloaindexDhD200703 103toDreasons whypeoplegobankrupt they cite ill or failing health as being responsible for more than half of bankruptcies filed nationwide Contributors to the website argue that you may have all the resources you thought you needed to build your financial buffers but when unexpected disasters befall you one after another those resources dwindle and vanish Medical and health problems cause a legion of other issues such as unemployment and large medical bills that can easily cripple your bank account I found a special report on CNNMoneycom about the ironical fact that three years after the passing of new legislation aimed at reducing personal bankruptcies there were one million new filings as 2008 drew to a close httpmoneycnncom20081024pfbankruptcy filingsindeXhtmpostversion200810271 1 The report blames the housing meltdown credit crunch and the global economic downturn for the increase in bankruptcies indicated in figures from the Administrative Office of the US Courts 934009 from June 2007 to June 2008 an increase of more than 28 percent from the 727167 petitions filed in the same period a year earlier The Long Island Bankruptcy Blog you know it s a big problem when there is a regional blog named after it states that in 2009 there were a total of 1473675 bankruptcy filings in the US BUSN380 Week 3 Threaded Discussion Hazardous to Your Health amp Credit Card Balances an increase of 32 over 2008 96 of them were filed by consumers The specific breakdown of the 20508 filings in Long Island district for the period ending September 2008 was 16790 Chapter 7 cases 247 Chapter 11 cases and 3469 Chapter 13 cases httplongislandbankruptcyblogcompersonalbankruptcyfilingscontinueupwardtrend Another bankruptcy blog httpwwwtotalbankruptcycomblogtagbankruptcystatistics Indicates the situation continues to worsen with consumer bankruptcy filings during the first half of 2010 rising to 770 117 a 14 increase over filings made in the same period the year before The site notes that the average national filing rate was 6800 filings per million households with Nevada doubling the national filing rate at 15000 filings per million households on account of their having the highest unemployment rate in the country David Destefano 15 Mar 11 718 PM MST The first thing I noticed on the page was located on the upper right hand side where there is a link quotFind a credit card quot Then on the main page was the ad for quotliving debt free quot Isn 39t this a contradiction in terms Or at least a paradox In the present economic state it is difficult to stay debt free if still using credit cards as a means to survive When I clicked the ad the following page listed debt services credit counselors and bankruptcy links as a means of getting debt free yet there was still a link for credit cards In my opinion its like offering a smoker a cigarette Hi David I appreciate your dilemma about the offering of a credit card in the same location that debtfree advice is being offered But think of the fact that in our society a credit card is a necessity make a hotel or plane reservation or to rent a car even if you plan to pay cash There are even many stores that require a credit card before they will accept your check The thing is responsible use of a credit card builds a good credit rating since it marks the owner as mortgage worthy BUSN380 Week 3 Threaded Discussion Hazardous to Your Health amp Credit Card Balances Of course people who have never had credit or need to repair a poor credit history may not qualify for a regular unsecured credit card For them a secured credit card may be the only way to establish or reestablish credit This card makes sure you never spend more money than you can afford for it requires a cash collateral deposit that becomes the credit line for that account For example if you put 500 in the account you can charge up to 500 You may be able to add to the deposit to add more credit or sometimes a bank will reward you for good payment and add to your credit line without requesting additional deposits So if you simply buy a few things and pay off the card in full every month you should be well on your way to credit repair We have presented some very informative commentary that has led us to conclude that credit card debt is a signi cant cause of personal bankruptcy In turn I think we can all agree that the recession39s effect on loss of jobs has likely driven the use of credit cards for actual survival spending not just expenditures on luxury goods To get a better idea of the dynamics of credit card debt let39s take a visit to wwwcreditnetcom How would you summarize the information provided by the site What in particular strikes you as the most valuable part of the consumer service this site provides Where was Credit ents when I was starting out I d say this part of the site is the most valuable part of this consumer service Anyone who takes the time to go through the three step tutorial and take the five question credit quiz should be wellequipped to make the best credit decisions of their life Of course you d have to wholeheartedly embrace the knowledge and advice given here to achieve the supremely difficult feat of NOT falling into the trap of credit greed The tutorial teaches about budgeting and financial planning in a realistic downtoearth manner that people can relate to Practice responsible credit use by only purchasing monthly necessities on your new credit card These expenses should already be built into your budget so you will have no problem paying them off when the credit card bill is due Don39t be tempted to purchase that new plasma TV you can39t really afford on credit Save the money first then buy BUSN380 Week 3 Threaded Discussion Hazardous to Your Health amp Credit Card Balances I do agree that the Search amp Apply button that appears at the end of the quiz and in every section of the website is a bit much but this is how the website sustains itself advertising Somebody has to pay the bills after all I want to hone in for a moment on a speci c type of interest applied and that is quotaddonquot interest This type of interest is commonly applied to a car loan What does your book say about addon interest and how it is applied to the principal of a loan The book says that addon interest differs from simple interest as far as when how and on what amount interest is paid It is calculated on the full amount of the original principal and as the number of payments increase the true interest rate also increases The amount of interest is immediately added on up front to the original amount of the loan and payments are determined by diViding principal plus interest by the number of payments to be made If only one payment is required the APR is the same as with simple interest but where two or more payments have to be made the effective rate of interest comes out higher than the stated rate So if I borrow 1000 at 5 50 is tacked on to the principal giVing me a total loan of 1050 to be repaid half payable at the end of 6 months and the balance due at the end of the second 6 months As stated IfI pay the loan off with more than one payment the addon interest method looks more like APR 2n1PN1 2250100021 2003000 00066 66 Using this method the interest stays at 50 but anytime you increase the number of payments I ll have use of less and less credit over the year E g making four quarterly payments of 26250 I ll have use of 1000 in the first quarter 750 in the second 500 in the third and 250 in the last To understand how to further examine how we are doing in our nancial lives with our relationship to debt the concepts of DebttoEquity and Debt PaymentstoIncome Ratio can be applied How is the DebttoEquity ratio calculated How is the Debt PaymentstoIncome ratio calculated What is the difference between the two What are the uses of the two ratios BUSN380 Week 3 Threaded Discussion Hazardous to Your Health amp Credit Card Balances Debt paymentstoincome ratio Current LiabilitiesNet Monthly Income It is a rule of thumb to measure your credit capacity and tells you whether you can afford a loan In other words can you make the monthly payments after you have taken care of all your essential expenses Ignoring longterm liabilities like house payments you divide your monthly payments due by your net monthly income Your score determines how much credit you should take on for the average family with average expenses with no major emergencies 20 of aftertax income should be the limit you spend on credit although 15 is better Debt to Equity Ratio Total LiabilitiesNet Worth excluding the value of your home and amount of mortgage It tells you if you have reached the limit of your debt obligations a ratio of 1 means your installment debt is equal to your net worth Your debt to equity ratio is a summary of how much you owe versus how much you are worth Banks often use your personal debttoequity as a component of deciding to lend you money Say you owe 180000 on your house and 7000 on your car loan totaling 187000 of debt If the equity in your home and all of your other assets total 400000 your debt to equity would be 187000400000 0468 The usual range for businesses is between 033 and 050 and the larger the ratio the riskier it is for creditors and lenders Firms with high debttoequity ratios may not be able to attract additional capital because lenders and investors usually prefer low debttoequity ratios to protect their interests in the event of a business decline How exactly do different credit cards work As we can imagine or in many cases we have experienced rst hand credit cards like mortgages are not all the same in the way they are nancially structured Often they include nance charges applied in different ways and interest calculated differently What are three different methods credit card companies use to apply nance charges Also what are the different ways of calculating the cost of interest on credit card loans mentioned in Chapter 7 Great discussion Class I think we have done a great job exploring how to negotiate with our personal debt In an eg a mortgage the as we pay off the principal over time the BUSN380 Week 3 Threaded Discussion Hazardous to Your Health amp Credit Card Balances In an quotaddonquot interest loan the amount of paid rreeee the r we referring re the ratio of interest to principal WITHIN each payment If this is not clear please let me know Please make sure you are comfortable with DebttoEquity and Debt PaymentstoIncome Ratio as well quotaddonquot interest One final thought if we borrow 100000 for one year at 10 using an addon interest nancing how much interest is in each of the twelve payments hint 10 of 100000 divided by 12 Ok Profyou39re asking how much interest is in each of the 12 payments right Interest is a calculation of percentage correct So you39re not asking for the amount of interest but the percentage If so then PrincipalInterestNo Payments Addon Interest So ifI borrow 1000 at 10 with 12 payments I get 1000100 110012 9166 Then APR or real interest rate is 2nIPn1 21291661000121 21999913000 017 By my calculations 017 interest is in each of the twelve payments Please make sure you are comfortable using the APR formula from page 215 of your text APR 2 n IPN1 n is payments in a year I is the interest plus service charge P is the principal N is the total number of payments in the loan agreement
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