Question

1. delara is opening a credit card because her budget is really tight right now and shes struggling to pay all of her expenses based on her income.

a. why might a card with a long grace period be in her best interest? (2 pts.)
b. she knows shell be making only the minimum monthly payments each month until she can find a job where shell earn more income. this means some of her payment every month will go toward paying interest rather than paying down her principal. what other factor(s) might be most important to delara? why? (3 pts.)

Explanation:

Part a

A long grace period means Delara can use the credit card for purchases and not be charged interest on those purchases if she pays the balance in full before the grace - period ends. Since her budget is tight, if she can manage to pay off the balance within the grace period (even if it's a struggle), she can avoid interest charges. This helps her keep her costs down while using credit to cover expenses.

Part b

The interest rate (APR - Annual Percentage Rate) is another important factor. If the interest rate is high, even a small balance can grow quickly when only minimum payments are made. For example, if the APR is \(r\%\), and the balance is \(B\), the monthly interest charge is \(\frac{r}{12}\%\) of \(B\). A lower interest rate means less of her minimum payment goes to interest and more (relatively) can go towards paying down the principal (over time, as the balance reduces, the interest charge also reduces). Also, any fees (such as annual fees) associated with the credit card matter. If there is an annual fee, it adds to her cost of using the credit card, which is not ideal when she is on a tight budget.

Answer:

a. A long grace period allows her to avoid interest charges if she pays the balance in full within that period, helping her manage expenses without extra cost.
b. Interest rate (APR) and fees. A lower interest rate means less of her payment is wasted on interest (as \(I = Prt\), lower \(r\) gives lower \(I\) for the same \(P\) and \(t\)). Fees add to her cost, and with a tight budget, she wants to minimize all costs.