Scenario: 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. Debt provides protection against rip-offs and fraud. The habit of buying on credit can lead to overspending and overindebtedness. You have unused credit available on your credit card. Debt provides financial flexibility and convenience when making payments. Points: 0 / 1 When is the use of borrowed money for an education justified? Incorrect When the education will maintain your current quality of life When the cost of your education is less than the estimated additional income that the education is expected to provide When the investment is expected to generate additional income that is less than the cost of the education. When the required repayments can be postponed for many years When the cost of the student loan is less than the interest rate on your credit cards. Points: 0 / 1 Close Explanation Explanation: Using credit is one place where doing something in moderation is really a good thing. And there is a big difference between having credit and using credit. Among the good reasons to have credit are the following: It makes some transactions more convenient, such as making airline, hotel, or rental car reservations. It provides additional time so that you can take advantage of free credit, or deferred payment, offers. It can allow you to afford expensive products and services, such as a home, car, or education, that you would not otherwise be able to afford if you had to pay cash. It can provide you with additional resources in the event of an emergency or an unexpected opportunity. It can provide you with additional legal credit protection against fraud if you make internet or telephone purchases using a credit card (rather than a debit card). But there are also disadvantages or bad reasons to use credit. Among these are: The habit of buying on credit can lead to overspending and overindebtedness. Having debt results in sacrifice in spending when a portion of your income must be spent repaying debt and paying interest. Dont use available credit just because you have credit available. Using debt reduces your ability to buy things in the future and have the financial flexibility to deal with emergencies or take advantage of opportunities.