Justin Granovsky, an assistant manager at a small retail shop in Morgantown, West Virginia, has an unusual amount of debt. He owes $5,400 to one bank, $1,800 to a clothing store, $2,700 to his credit union, and several hundred dollars to other stores and individuals. Justin is paying more than $460 per month on the three major obligations to pay them off when due in two years. He realized that his take-home pay of slightly more than $3,100 per month did not leave him with much excess cash. Justin discussed a different way of handling his major payments with his bank’s loan of-ficer. The officer suggested that Justin pool all of his debts and take out an $11,000 debt-consolidation loan for seven years at 14 percent interest. As a result, he would pay only $250 per month for all his debts. Justin seemed ecstatic over the idea. (a) Is Justin’s enthusiasm over the idea of a debt-consolidation loan justified? Why or why not? (b) Why can the bank offer such a “good deal” to Justin? (c) What compromise would Justin make to remit payments of only $250 as compared with $460? (d) How much total interest would Justin pay over the seven years, and what would be a justification for this added cost
Justin Granovsky, an assistant manager at a small retail shop in Morgantown, West Virginia, has an unusual amount of debt. He owes $5,400 to one bank, $1,800 to a clothing store, $2,700 to his credit union, and several hundred dollars to other stores and individuals. Justin is paying more than $460 per month on the three major obligations to pay them off when due in two years. He realized that his take-home pay of slightly more than $3,100 per month did not leave him with much excess cash. Justin discussed a different way of handling his major payments with his bank’s loan of-ficer. The officer suggested that Justin pool all of his debts and take out an $11,000 debt-consolidation loan for seven years at 14 percent interest. As a result, he would pay only $250 per month for all his debts. Justin seemed ecstatic over the idea. (a) Is Justin’s enthusiasm over the idea of a debt-consolidation loan justified? Why or why not? (b) Why can the bank offer such a “good deal” to Justin? (c) What compromise would Justin make to remit payments of only $250 as compared with $460? (d) How much total interest would Justin pay over the seven years, and what would be a justification for this added cost
Chapter6: Deductions And Losses: In General
Section: Chapter Questions
Problem 35P
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Question
Justin Granovsky, an assistant manager at a small retail shop in Morgantown, West Virginia, has an unusual amount of debt. He owes $5,400 to one bank, $1,800 to a clothing store, $2,700 to his credit union, and several hundred dollars to other stores and individuals. Justin is paying more than $460 per month on the three major obligations to pay them off when due in two years. He realized that his take-home pay of slightly more than $3,100 per month did not leave him with much excess cash. Justin discussed a different way of handling his major payments with his bank’s loan of-ficer. The officer suggested that Justin pool all of his debts and take out an $11,000 debt-consolidation loan for seven years at 14 percent interest. As a result, he would pay only $250 per month for all his debts. Justin seemed ecstatic over the idea.
(a) Is Justin’s enthusiasm over the idea of a debt-consolidation loan justified? Why or why not?
(b) Why can the bank offer such a “good deal” to Justin?
(c) What compromise would Justin make to remit payments of only $250 as compared with $460?
(d) How much total interest would Justin pay over the seven years, and what would be a justification for this added cost
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Debt Consolidation -
The strategy of debt consolidation is the act of taking a new loan to pay off all the existing debts. This strategy is used by individuals who have various debts to be paid off. By debt consolidation, these individuals club their debts together as one and take a new debt or loan for the payment of these clubbed debts.
This strategy helps the borrowers to pay -off their debts at a new interest rate and in a new time horizon. This is a type of personal finance practice by individuals and rolls multiple debts of the borrower.
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