You are 22 years old, unmarried, have no children, and a take-home pay of $2,500 per month. You depended on your parents while attending college. You are engaged to be married in 18 months. You have very little credit history, but want to establish a good credit rating so that you may be able to rent/buy a home and qualify for low-cost loans when you buy a new car or appliance. You also want to be able to qualify for credit cards with good reward programs and low fees and interest rate. Read each statement below and indicate whether it is a good or bad reason for using debt.
Statement Bad reason Good reason
Debt provides the means to purchase big ticket products sooner rather than later.
You have unused credit available on your credit card.
Debt provides financial flexibility and convenience when making payments.
The habit of buying on credit can lead to overspending and overindebtedness.
Debt provides protection against rip-offs and fraud
When is the use of borrowed money for an education justified?
A) When the cost of your education is less than the estimated additional income that the education is expected to provide
B) When the investment is expected to generate additional income that is less than the cost of the education.
C) When the required repayments can be postponed for many years
D) When the cost of the student loan is less than the interest rate on your credit cards.
E) When the education will maintain your current quality of life