Question
This month, the Sampsons increased their savings by $3,000 because they paid most of their expenses with a credit card. However, now their credit card
This month, the Sampsons increased their savings by $3,000 because they paid most of their expenses with a credit card. However, now their credit card has a balance of about $2,000. They will likely earn about 2% on the savings. Meanwhile, their credit card company will charge them 18% interest on the credit card balance.
1) Advise the Sampsons on whether they should continue making minimum payments on their credit card or use money from their savings to pay off the credit balance.
2) The Sampsons are worried that by using savings to eliminate their credit card debt, they will reduce their assets and their net worth. Explain to the Sampsons how using savings to eliminate credit card debt affects their total assets, total liabilities, and net worth, and how it will improve their net cash flows over time.
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