It will take Cody 3 months to save up enough money to purchase a stereo. He has a credit card with a 12% interest rate. Cody’s friend Mark says it will cost Cody less money if he saves for 3 months instead of using the credit card. Is Mark correct?

If Cody saves for three months, he will not incur any other cost apart from the purchase price of the stereo. Cody may even earn some interest on the savings depending on his type of account.

The use of a credit card is incurring a debt. The credit card debt is usually among the highest in the market. It calculates interests monthly. If Coby purchases the credit card, he will pay three months' interest on the credit.

The savings option will cost less money because it eliminates interest payments.

Parrain Parrain · Answer 2 · 2021-12-16T14:49:05+01:00

With regards to whether Cody's cost will be less from saving as opposed to using the credit card, Mark is correct.

Using a credit card:

Means that one will pay interest on any amount they spend
Requires that one pay interest periodically on the balance

If Cody uses the credit card to purchase the stereo, he will have to pay the 12% interest on the amount he uses. If he decides to save however, he will not have to pay any interest at all.

In conclusion, it will cost Cody less to save than to use a credit card.

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