Harry and Belinda have a substantial annual joint income—more than $125,000, in fact. Nevertheless, they expect to experience some cash-flow deficits during the months of November and December of the upcoming year (see Tables 3-6 and 3-7 on pages 97–98).
g year (see Tables 3-6 and 3-7 on pages 97–98). To resolve this difficulty, the couple is considering opening a credit card account and using it exclusively for those expenditures that will cause the deficits they face. They could also open a line of credit that would allow them to borrow money by simply going online and having money placed in their checking account.
(a) What are the advantages and disadvantages of the Johnsons opening these accounts?
(b) What financial calculations should Harry and Belinda undertake to see whether they could afford to borrow more money at this time?
(c) What might Harry and Belinda do before applying for credit to ensure that they will pay the lowest interest rate possible?
(d) Should they use credit to resolve their budget imbalances? Why or why not?