Question

Emmitt wants to buy a new flat screen television. The cost of the television is $539. He has a credit card with a credit limit of $1,000 and an APR of 22 percent. The store offers him store credit with six months no interest and an APR of 22 percent. This means if he pays the balance in the first six months, he doesn’t pay any interest. If he doesn’t pay off the balance in the first six months, then he starts paying 22 percent interest on the balance thats left. Since he just paid off his car loan, he can afford to pay $100 each month. This means it would be possible for him to pay the balance within six months. He also has a great credit score and could obtain a personal loan. Remember, the goal is to find the most cost-effective option for purchasing the TV. How should Emmitt pay for the television?




How should Emmitt pay for the television? Be sure to use the PACED decision-making model and show your work.

Answer 1

Option 1: Current credit card
Emmitt has a credit card that has a $1000 credit limit and he has to pay 22% APR on this

Option 2: New store credit card
This new credit card offer will put a demporary dent into Emmitt's credit score (and is therefore not recommended if he is looking to purchase a house in the near future). However, the six months of no interest will allow Emmitt to effectively pay no interest on his $539 purchase.

Option 3: Personal loan
Although the APR will be less than the 22% APR of a credit card, there will still be an interest rate (without grace period) on such a personal loan.

I believe our goal here is to select the choice that would allow Emmitt to pay the least amount (or no) interest.

Answer 2

Emmitt should consider all of his options before making a decision on how to pay for the television. Using the PACED decision-making model, he should first identify the problem, which is how to pay for the television. He then needs to gather information on the different payment options available to him, including using his credit card, store credit, or obtaining a personal loan.

Next, Emmitt should consider the advantages and disadvantages of each payment option. Using his credit card would allow him to purchase the TV immediately, but he would have to pay interest on the balance if he doesn't pay it off within six months. Using store credit would also allow him to purchase the TV immediately, but he would have to pay the balance off within six months to avoid paying interest. Obtaining a personal loan would give him a fixed interest rate and a longer repayment period, but he would have to go through the application process and potentially pay additional fees.

After considering the advantages and disadvantages of each option, Emmitt should then make a decision based on what is most cost-effective for him. In this case, since he can afford to pay $100 per month and has a great credit score, it would be best for him to use the store credit option and pay off the balance within six months to avoid paying any interest. This will save him money in the long run and allow him to purchase the TV without incurring any additional fees or charges.

Answer 3

Based on the PACED model, the most cost-effective option for Emmitt to purchase the television would be to use the store credit card with six months no interest. This will allow him to pay off the balance within the first six months and avoid paying any interest. However, it is important to note that this option may temporarily lower his credit score. If Emmitt is not planning on making any major purchases that require a good credit score in the near future, this should not be an issue. It is also important for Emmitt to make sure he can afford the monthly payments and pay off the balance within the six-month period. Overall, this option will save Emmitt the most money in interest payments.

Answer 4

@arieonna