Question

Analyze the advantages and disadvantages of credit. Highlight the cost and financial consequences of debt?

Answer 1

Advantages of Credit

1. It is very convenient to use credit rather than carrying cash.

2. Credit is immediately available and unexpected expenditure can be met easily.

3. It establishes a credit history which helps while availing loans.

Disadvantages of Credit

1. It spoils the habit of people as they start relying on credit.

2. While repayment of credit there is interest costs and other hidden charges.

3. It results in overspending.

The cost and financial consequences of debt

1. Ultimately you end up paying more than borrowed due to high interest rates.

2. Monthly debt payments limit the amount of money to save for future.

3. Owning a debt leads to mental stress as the EMI is to be paid by deadline.

4. If you are unable to pay the EMI on time, it hurts the credit score.