Error in explanation about the interest rate of 15.86%

Thank you for solving that! David, just chill a little. Sangil.Jwa solved the problem. Maybe YOU can offer a correction to a help center.

Why do people not give me money for free, i wants me sum kfc and v buks

For the same reason you aren't willing to give me free money or V bucks.

should i get a credit card

If you're old enough, you should do that. If you're not old enough to qualify, then don't even try.

Is it better to always do research before buying anything?

If I'm planning to purchase a refrigerator, a guitar, or a snowboard, then perhaps some research is a good thing to do. But if we're talking about a burrito from a taco truck, then not so much.

So I'm a little confused about how to interpret the correct interest rate information. How many decimal places are we rounding to? Because if we round 0.863 to the second decimal place(6), we get what I believe is an 85% interest rate, if we round to the first decimal place (8), we get a 7% interest rate. I have number dyslexia, so while I understand this concept, I want to make sure I'm sorting the information correctly.

If you round to two decimal places, it should be 86% (0.86) interest, while if you round to one decimal place it should be 90% (0.90). Having said that, you should not be rounding interest rates for an accurate number. If you really have to, round up rather than round down since rounding down may lead you to underestimate the cost. I am not sure what interest rate you are referring to though since I have never seen an interest rate that high.

can i use the envelope method with my credit card & debit card

Whereas the envelope method was created for use with cash, I suppose you could make it work with a credit card. Just use Monopoly money in the envelopes, and deduct from the monthly amount you allow yourself to charge onto the card. But, why you'd want to do this is a mystery to me.

What is the best possible payment method?

The best possible payment method is to pay on time, don't be late with a payment. BUT, paying the full balance every month does not give you any benefits regarding your credit score, so when you can do it, stretch some things out for a few months (not too many months) to prove that you can pay off a debt.

Main content

Course: Financial Literacy > Unit 3

Lesson 3: Payment methods

Comparing payment methods

Google Classroom

Learn how to compare different payment methods: cash, card, rent-to-own, installment, store financing, and layaway.

When paying for small purchases, like coffee or a haircut, paying cash is almost always the best choice. You do not have to worry about its impact on your budget, or paying any unnecessary fees like interest, processing fees, or minimum charge fees. But, when it comes to bigger purchases, cash may not always be readily available or best. Let's look at some scenarios and compare different payment methods.

Scenario 1: Buying a TV

Let's assume you are thinking about buying a TV. The total cost, after taxes, is

$ 550

. You have

$ 200

saved already. Below are the options available to you:

Method	Terms	Total	Notes
Cash	None	$$ 550$ ‍	will have to wait until fully saved up
Credit card	$20.99 %$ ‍ APR, $30$ ‍ days grace period	$$ 550 +$ ‍ interest	have to pay off fully in $30$ ‍ days to avoid interest
In-store financing	$6$ ‍ months interest-free	$$ 550$ ‍	6 payments of $$ 91.67$ ‍
Layaway	$$ 5$ ‍ set up fee, equal monthly payments	$$ 555$ ‍	will have to wait to take home

Choosing the best option will depend on a mix of your current financial situation, your discipline, and your own emotions.

If your only concern is paying the lowest cost, then cash and in-store financing are the best choices. Credit card may be a choice here, as well, if you can pay off your balance in

30

days. However, if you want to be able to take the TV home with you immediately, and will not have the entire amount saved up in the next month, then in-store financing becomes the best choice.

Scenario 2: Buying furniture

In this scenario, let's assume you are moving from a one-bedroom to a two-bedroom apartment and you need to buy furniture for the second bedroom. The total cost to furnish the bedroom is

$ 725

. You have just put down a deposit for the apartment, so you do not have enough cash to buy the furniture outright. On top of that, your credit score is low, since you just started building your credit history. Let's look at all the payment options and try to decide on the best one.

Method	Terms	Total	Notes
$Cash$ ‍	$None$ ‍	$$ 725$ ‍	no cash saved up
Credit card	$29.99 %$ ‍ APR, $31$ ‍ days grace period	$$ 725 +$ ‍ interest	have to pay off fully in $31$ ‍ days to avoid interest
$In-store financing$ ‍	$9 months interest-free$ ‍	$$ 725$ ‍	not approved
Layaway	$$ 5$ ‍ set up fee, equal monthly payments	$$ 730$ ‍	will have to wait to take home
Rent-to-own	$$ 70$ ‍ per month for $12$ ‍ months	$$ 840$ ‍	no credit check, $16 %$ ‍ interest

In this scenario, we see that two of the options are not available: cash and in-store financing. Cash is unavailable because there is no cash saved up to fully pay off the furniture. In-store financing is also unavailable since the application for the store credit card was not approved, due to a low credit score. This leaves us with three options: credit card, layaway, and rent-to-own.

If your main goal is to pay the lowest cost, then the best choice would be your credit card, as long as you pay it off before the grace period ends. If you cannot pay off the balance in

31

days, then the second lowest cost would be layaway, as long as you do not need the furniture immediately. This would be the best choice if the second room is a guest room that would not be used immediately.

If you need the furniture immediately and will probably take a year to pay off, then rent-to-own becomes the best choice. Even though the total cost initially appears to be the highest, it is actually lower than the credit card's total cost.

The terms for rent-to-own are shown to be

$ 70

for

12

months. This means that the total cost is going to be

$ 70 \times 12 = $ 840

. To quickly figure out what interest rate you are paying take the total cost and divide it by the price.

840 \div 725 = 1.1586 \approx 1.16

. The interest rate is the numbers shown after the .(period). So, in this case, it is

16 %

This rate is lower than the credit card rate of

29.99 %

, so you will end up paying less in total costs with rent-to-own.

Finding the best payment option depends on many factors, from your finances, budget, timeline, and even emotions. It is always a good idea to write all your options down and eliminate the ones that do not work for your situation.

Want to join the conversation?

Sort by:

Sangil.Jwa
Posted a year ago. Direct link to Sangil.Jwa's post “Error in explanation abou...”
Error in explanation about the interest rate of 15.86%
Button navigates to signup pageComment on Sangil.Jwa's post “Error in explanation abou...”
(4 votes)
Answer
- Scoreboard_HR
  Posted 10 months ago. Direct link to Scoreboard_HR's post “Thank you for solving tha...”
  Thank you for solving that! David, just chill a little. Sangil.Jwa solved the problem. Maybe YOU can offer a correction to a help center.
  Button navigates to signup page
  (14 votes)
TyDollaz
Posted a year ago. Direct link to TyDollaz's post “can i use the envelope me...”
can i use the envelope method with
my credit card & debit card
Button navigates to signup pageComment on TyDollaz's post “can i use the envelope me...”
(1 vote)
Answer
- David Alexander
  Posted a year ago. Direct link to David Alexander's post “Whereas the envelope meth...”
  Whereas the envelope method was created for use with cash, I suppose you could make it work with a credit card. Just use Monopoly money in the envelopes, and deduct from the monthly amount you allow yourself to charge onto the card. But, why you'd want to do this is a mystery to me.
  Comment on David Alexander's post “Whereas the envelope meth...”
  (10 votes)
24sbrisa
Posted 3 months ago. Direct link to 24sbrisa's post “Is it better to always do...”
Is it better to always do research before buying anything?
Button navigates to signup pageButton navigates to signup page
(2 votes)
Answer
- David Alexander
  Posted 3 months ago. Direct link to David Alexander's post “If I'm planning to purcha...”
  If I'm planning to purchase a refrigerator, a guitar, or a snowboard, then perhaps some research is a good thing to do. But if we're talking about a burrito from a taco truck, then not so much.
  Button navigates to signup page
  (6 votes)
kdyer
Posted 2 months ago. Direct link to kdyer's post “Why do people not give me...”
Why do people not give me money for free, i wants me sum kfc and v buks
Button navigates to signup pageComment on kdyer's post “Why do people not give me...”
(3 votes)
Answer
- #1 Unicorn
  Posted 2 months ago. Direct link to #1 Unicorn's post “For the same reason you a...”
  For the same reason you aren't willing to give me free money or V bucks.
  Button navigates to signup page
  (4 votes)
CarleeB
Posted 5 months ago. Direct link to CarleeB's post “i like getting int this s...”
i like getting int this stuff
Button navigates to signup pageButton navigates to signup page
(4 votes)
Answer
trentonrcolwell
Posted a year ago. Direct link to trentonrcolwell's post “What is the best possible...”
What is the best possible payment method?
Button navigates to signup pageButton navigates to signup page
(1 vote)
Answer
- David Alexander
  Posted a year ago. Direct link to David Alexander's post “The best possible payment...”
  The best possible payment method is to pay on time, don't be late with a payment. BUT, paying the full balance every month does not give you any benefits regarding your credit score, so when you can do it, stretch some things out for a few months (not too many months) to prove that you can pay off a debt.
  Button navigates to signup page
  (5 votes)
ctinsley2025
Posted 3 months ago. Direct link to ctinsley2025's post “should i get a credit car...”
should i get a credit card
Button navigates to signup pageButton navigates to signup page
(3 votes)
Answer
- David Alexander
  Posted 3 months ago. Direct link to David Alexander's post “If you're old enough, you...”
  If you're old enough, you should do that. If you're not old enough to qualify, then don't even try.
  Button navigates to signup page
  (2 votes)
Karie Pfaffenberger
Posted 9 months ago. Direct link to Karie Pfaffenberger's post “So I'm a little confused ...”
So I'm a little confused about how to interpret the correct interest rate information. How many decimal places are we rounding to? Because if we round 0.863 to the second decimal place(6), we get what I believe is an 85% interest rate, if we round to the first decimal place (8), we get a 7% interest rate. I have number dyslexia, so while I understand this concept, I want to make sure I'm sorting the information correctly.
Button navigates to signup pageButton navigates to signup page
(2 votes)
Answer
- J Chan
  Posted 8 months ago. Direct link to J Chan's post “If you round to two decim...”
  If you round to two decimal places, it should be 86% (0.86) interest, while if you round to one decimal place it should be 90% (0.90). Having said that, you should not be rounding interest rates for an accurate number. If you really have to, round up rather than round down since rounding down may lead you to underestimate the cost. I am not sure what interest rate you are referring to though since I have never seen an interest rate that high.
  Button navigates to signup page
  (4 votes)
mansoor.alhalmi
Posted 3 months ago. Direct link to mansoor.alhalmi's post “can i use the envelope me...”
can i use the envelope method with
my credit card & debit card
Button navigates to signup pageButton navigates to signup page
(3 votes)
Answer
- David Alexander
  Posted 3 months ago. Direct link to David Alexander's post “You use the envelope meth...”
  You use the envelope method to divide your earnings into different categories based on the budget you plan. If you have labeled one of those envelopes for "credit card payments", then the method will work for you.
  Button navigates to signup page
  (1 vote)
kenfurna
Posted a year ago. Direct link to kenfurna's post “what does this all mean a...”
what does this all mean actually??
Button navigates to signup pageComment on kenfurna's post “what does this all mean a...”
(2 votes)
Answer
- Samantha Jean-Louis
  Posted 7 days ago. Direct link to Samantha Jean-Louis's post “if you use a credit card,...”
  if you use a credit card, you're borrowing the money and you will have to pay that back later. on the other hand if you use a debit card, the money is coming from your bank account
  Button navigates to signup page
  (1 vote)