need 1-2 pages
Nancy Tai has recently opened a revolving charge account with MasterCard. Her credit limit is $1000, but she has not charged that much since opening the account. Nancy hasn't had the time to review her monthly statements as promptly as she should, but over the upcoming weekend, she plans to catch up on her work.
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 16%. 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.
SHOW ALL WORK FOR EACH ASSIGNMENT AND EXPLAIN EACH STEP CAREFULLY.
need 2-3 paragraphs
If a good friend of yours has had serious financial misfortunes lately and is unable to meet her debt payments, what advice can you give? Be sure to include the topic of bankruptcy because she has heard that it eliminates all your credit problems. In your discussion, distinguish between straight bankruptcy and a wage earner plan. Use the Library and other Internet sources to supplement your information.
I will be happy to critique your thinking on this.
To calculate Nancy's interest using the average daily balance method, you would need to follow these steps:
1. Calculate the average daily balance:
- Subtract any payments made during the month from the beginning balance. In this case, $600 - $200 = $400.
- Add any charges made during the month. In this case, $400 + $80 + $100 + $50 = $630.
- Divide the total balance by the number of days in the billing cycle. Assuming a 30-day period in November, $630 / 30 = $21.
2. Calculate the interest using the average daily balance and the given APR:
- Multiply the average daily balance by the APR. In this case, $21 * 0.16 = $3.36.
For the interest calculation using the previous balance method, you would take the $600 beginning balance and multiply it by the APR. In this case, $600 * 0.16 = $96.
For the interest calculation using the adjusted balance method, you would take the ending balance (which is the sum of the charges and the beginning balance) and multiply it by the APR. In this case, ($600 + $80 + $100 + $50) * 0.16 = $168.
Now, going back in time, if Nancy had the choice among credit sources that offered different monthly balance determinations, the recommended credit source would depend on her financial habits and goals. Based on the information provided, it seems that Nancy tends to carry a balance on her credit card as she hasn't charged up to the credit limit. In such cases, a credit source that allows for the adjusted balance method may be more advantageous as it considers the current charges and provides a more accurate representation of the outstanding balance. However, it is important for Nancy to compare the interest rates and terms of different credit sources to make an informed decision.
Regarding the topic of bankruptcy, it is essential to approach this subject with caution and consider seeking professional advice, such as consulting with a bankruptcy attorney or a credit counselor. While bankruptcy can provide relief from overwhelming debt, it comes with serious consequences and should generally be considered as a last resort. There are different types of bankruptcy, with the two most common being straight bankruptcy (Chapter 7) and a wage earner plan (Chapter 13).
Straight bankruptcy, also known as liquidation bankruptcy, involves the liquidation of the debtor's assets to pay off creditors. It can discharge unsecured debts, such as credit card debt and medical bills, but may require the sale of certain assets. On the other hand, a wage earner plan, or reorganization bankruptcy, allows debtors to set up a repayment plan based on their income. This plan typically lasts three to five years and allows debtors to keep their assets while making regular payments to creditors.
It is important to note that bankruptcy does not eliminate all credit problems. While it may provide relief from certain debts, it can have long-lasting effects on an individual's credit history and ability to obtain credit in the future. Bankruptcy filings remain on credit reports for several years and can make it difficult to obtain loans, mortgages, or favorable interest rates.
In such a situation, it would be advisable for your friend to seek professional guidance, as bankruptcy can have far-reaching implications. They may benefit from reviewing their financial situation with a credit counselor who can provide personalized advice and explore alternatives to bankruptcy, such as debt consolidation, negotiation with creditors, or creating a realistic budget and repayment plan.