Analysis of Credit Card Debt

Module 3 LASA Assignment HELP and EXAMPLES

Dear Class,

What is LASA? LASA stands for Learning Assessment Systems Assignment.

In all AUO courses in the 5 week model, there are two high-stakes assignments called Learning Assessment Systems Assignments, or LASAs. Each of these LASA assignments will assess the course objectives, and provide a measure of your learning throughout the course. These LASA assignments ensure that you are meeting course objectives and program outcomes, and obtaining the required knowledge and skills for the discipline.

Each course will have 2 LASA assignments: LASA 1 during Week 3 and LASA 2 during Week 5. Together these LASA assignments make up 50% of your total score in the course. Therefore it is imperative that your work on the LASA assignments be the best that you can produce. To this end, you are encouraged to look over the LASA assignment prior to the assignment week, so that you can plan ahead and prepare to complete the assignment.

Additionally, each LASA assignment contains a rubric, which gives you specifically what instructors are looking for in each given grading criterion.

To summarize:

· 2 LASA assignments in each course – Week 3 and Week 5

· Combined, the LASA assignments will assess all of the course objectives

· Combined, the LASA assignments make up 50% of your total points for the course. These are important high-stakes assignments.

· PLAN AHEAD! Do not leave LASA assignments to the last minute, read them over before the assigned week, plan and prepare so you can complete the LASA assignments fully

Below you will find a VERY HELPFUL EXAMPLE of how to complete the LASA. Please carefully go over this example at least 3 or 4 times. Then, open the required template that has been emailed and posted in class, and complete your work. Be sure that you review the grading rubric for how your work will be scored. Please show all of your work!

1. Most credit cards require that you pay a minimum monthly payment of 3 percent of the balance. Based upon a balance of $4,800.00, what would be the minimum monthly payment (assuming no other fees are being applied)?

Note this is an EXAMPLE. The actual LASA assignment uses different values, please be careful!

Here, we are looking for what is 3% of $4,800? In other words, we are looking for an unknown quantity, so we can call this “x” and set up our equation:

x = .03*4,800 = $144.

Thus, the minimum monthly payment of 3% is $144.

Note that I have shown my work and explained my process for solving the above. Please make sure that you do the same for all problems.

2. Considering the minimum payment you just calculated, determine the amount of interest and the amount that was applied to reduce the principal. Hint: You’ll need to find the total interest for the year first.

Here, for simplicity let’s consider that this credit card interest is compounded annually (one time per year). Note most credit cards do *not* do this.

So, let’s say that the APR interest rate for our credit card is 20% for the year.

Remember this is just an example. For your assignment, you will be using an APR of 15.53% (this is written as .1553 in decimal format).

So, our total interest for the year would be 20% of $4,800, or:

.2*4,800 = $960.

Now, our monthly interest would be: $960/12 months = $80. Note here we divided by 12 since there are twelve months in the year and we are looking for the amount that is applied towards the interest each month.

Thus, of the $144 that we calculated in Part 1 above, $80 goes to interest, and the rest is applied to reduce the principal.

$144 - $80 = $64 applied to reduce the principal.

Note that I have shown my work and explained my process for solving the above. Please make sure that you do the same for all problems.

3. Consider one of your credit cards. What is the balance? How is the minimum monthly payment determined? What would be the minimum payment? How much of the minimum payment goes towards interest? How much of the minimum payment goes towards the principal? If you do not want to share an actual balance or do not have a credit card, calculate these amounts using an imaginary credit card balance.

I will use a hypothetical balance of $1,000 on a credit card. You may use a real balance or a hypothetical balance in your answer. If you use a real balance, I encourage you to review your credit card agreement, your most recent bill, and/or call your bank for help in understanding how your minimum monthly payment is calculated.

The minimum monthly payment for my example is determined by taking 1.5% of the total balance, plus any additional fees such as late payment fees, over-the-limit fees, yearly service fees, etc.

The minimum monthly payment would be 1.5% of $1,000:

.015*1,000 = $15 is the minimum monthly payment.

Next, we have the question: How much of the minimum payment goes towards interest?

The APR of this credit card is 12%. To find the monthly amount that goes towards interest, we have: (1,000*.12)/12 months = $10

Next, the amount of the minimum payment that goes towards the principal is $15 - $10 = $5.

Note that I have shown my work and explained my process for solving the above. Please make sure that you do the same for all problems.

Again, these are just EXAMPLES, and YOUR values will be different. (

4. Now, examine the terms of one of your credit cards or other revolving debt. Are there other charges that the credit card company is applying to your account? Are you receiving a special rate for a limited time? Does your card charge an annual service charge or an inactivity fee?

Note, here if you do not have a credit card, you may research information on a credit card that you could apply for.

Here, to answer this question, I will review my credit card agreement and the information on my last statement.

I see that the following charges apply to my card:

· Yearly membership fee

· Late or Returned Payment fee

· Over limit fee

· Minimum Interest charge

Are there any special rates for a limited time?

· Yes, when I first received this credit card, there were no interest charges for the first 6 months.

Does my card charge an annual service charge or inactivity fee?

· Yes, my card charges an annual service chart of $49, but no inactivity fee.

5. Examine a credit card bill (or other revolving debt) and see how long it will take to pay off your debt if you paid only the minimum payments.

HINT: Here is a calculator that will really help you: http://www.bankrate.com/calculators/credit-cards/credit-card-payoff-calculator.aspx

What steps could you take to pay off this credit card (or debt) sooner? Determine the percentage of the principal that you need to pay down in order to pay off the credit card in the time frame of your choosing.

Here to answer this question, I will use the following link:

http://www.bankrate.com/calculators/credit-cards/credit-card-payoff-calculator.aspx

I enter the following information:

· Credit card balance: 1000

· Credit card interest rate: 12

· Payment per month: $15 (this is the minimum payment that I discussed in a previous question above)

· Then I click “calculate.”

The calculator tells me that it will take me 105 months to pay off this card fully – that’s just under 9 years!

To pay off this credit card sooner, I could pay MORE than the minimum amount due each month. I could examine any unnecessary expenses in my budget and eliminate or reduce them.

Let’s say that I wanted to pay off the balance of $1000 in five years:

In the calculator, I enter:

· Credit card balance: 1000

· Credit card interest rate: 12

· Desired months until debt free: 60 (do NOT enter a payment amount per month – just leave that field blank)

· Then I click “calculate.”

The calculator tells me that I will need to pay $22.24 per month in order to pay it off in 5 years.

So:

$22.24 is what percent of 1000?

22.24 = 1000*x

22.24/1000 = x

.0222 or 2.22% = x

So in this example, we can pay about 2.22% of the principal per month (rather than the minimum of 1.5% of the principal) to pay it off in 5 years or less.

6. Many Americans find themselves amassing large amounts of credit card (or other revolving) debt at an early age. What advice concerning the use of credit cards and the fees they charge would you provide to a young adult planning on getting a credit card?

This is an important question and requires some careful reflection. Your answers will vary, though you might have similar suggestions. I would advise a young person to do extensive research on the Internet and talk with people who have good credit and people who have bad credit, and ask questions and gain their insights and perspectives. I would advise a person to get a single credit card and use it with extreme discipline in order to build credit history. I would advise a person to not have more than 30% of their available credit in use at any time, and pay off the balance in full each month. I would advise a young person to start with being an authorized user on their parent’s account, or to have a secured credit card with a small limit.

Grading Criteria:

Assignment 2 Grading Criteria	Maximum Points
Assignment Components
Calculations—Student correctly computes the minimum monthly payment for the scenario. Student correctly computes the amount of interest and principal being paid down with minimum payments based upon the scenario.	48
Analysis—Student effectively analyzes the terms, conditions, and charges for a credit card or another form of consumer debt. Student outlines a thoughtful and detailed plan to pay down a credit card or another form of consumer debt based upon a specific time frame.	48
Implications—Student provides insightful commentary regarding handling and/or avoiding the pitfalls of credit card debt or another form of consumer debt.	48
Writing Components
Organization—Introduction,Thesis,Transitions,Conclusion	12
Usage and Mechanics—Grammar, Spelling, Sentence structure	24
APA Elements—Attribution, Paraphrasing, Quotations	16
Style—Audience, Word Choice	4
Total:	200

Grading Rubric:

	Unsatisfactory	Emerging	Proficient	Exemplary
Assignment Components
Calculations Student correctly computes the minimum monthly payment for the scenario. Student correctly computes the amount of interest and principal being paid down with minimum payments based upon the scenario. (CO2, CO3)	Calculation of the minimum payment is not accurate and computation of the interest and principal in that payment are incorrect.	Calculation of the minimum payment is accurate, but computation of the interest and principal in that payment are both inaccurate.	Calculation of the minimum payment is accurate, but computation of either the interest or the principal in that payment is incorrect.	Calculation of the minimum payment is accurate; computation of the interest and principal in that payment is correct.
Analysis Student effectively analyzes the terms, conditions, and charges for a credit card or another form of consumer debt. Student outlines a thoughtful and detailed plan to pay down a credit card or another form of consumer debt based upon a specific time frame. (CO1, , CO4)	Analysis of terms, conditions, and charges for a credit card or another form of consumer debt is inaccurate and unclear. Analysis does not address how these terms, conditions, and charges affect current and future balance of debt. Plan to pay down debt is not clear, reasonable, or achievable and fails to consider any of the above conditions, terms, or charges in its calculations.	Analysis of terms, conditions, and charges for a credit card or another form of consumer debt is somewhat accurate. Analysis does not address how these terms, conditions, and charges affect current and future balance of debt. Plan to pay down debt is not clear, reasonable, or achievable and fails to consider the most important of the above conditions, terms, or charges in its calculations.	Analysis of terms, conditions, and charges for a credit card or another form of consumer debt is accurate and clear. Analysis may explain how these terms, conditions, and charges affect current and future balance of debt, but may have to be inferred by the reader. Plan to pay down debt is clear, reasonable, and achievable. It indirectly considers any of the above conditions, terms, or charges in its calculations.	Analysis of terms, conditions, and charges for a credit card or another form of consumer debt is accurate and clear. Analysis directly explains how these terms, conditions, and charges affect current and future balance of debt. Plan to pay down debt is clear, reasonable, and achievable. It addresses any of the above conditions, terms, or charges in its calculations.
Implications Student provides insightful commentary regarding handling and/or avoiding the pitfalls of credit card debt or another form of consumer debt. (CO4)	Proposal does not identify the common pitfalls of debt and does not provide a proposal on how to handle or avoid the pitfalls of debt.	Proposal identifies some of the common pitfalls of debt. Proposal lacks reasonable and accurate details on how to handle or avoid the pitfalls of debt.	Proposal accurately identifies the common pitfalls of debt. Proposal on how to handle or avoid the pitfalls of debt does not include specific examples that are reasonable or accurate.	Proposal clearly and accurately identifies the common pitfalls of debt. Proposal on how to handle or avoid the pitfalls of debt clearly provides specific examples that are reasonable and accurate.
Writing Components
Organization Introduction Thesis Transitions Conclusion	Introduction is limited or missing entirely. The paper lacks a thesis statement. Transitions are infrequent, illogical, or missing entirely. Conclusion is limited or missing entirely.	Introduction is present but incomplete or underdeveloped. The paper is loosely organized around a thesis that may have to be inferred. Transitions are sporadic. Conclusion is present, but incomplete or underdeveloped.	Introduction has a clear opening, provides background information, and states the topic. The paper is organized around an arguable, clearly stated thesis statement. Transitions are appropriate and help the flow of ideas. Conclusion summarizes main argument and has a clear ending.	Introduction catches the reader’s attention, provides compelling and appropriate background info, and clearly states the topic. The paper is well organized around an arguable, focused thesis. Thoughtful transitions clearly show how ideas relate. Conclusion leaves the reader with a sense of closure and provides concluding insights.
Usage and Mechanics Grammar Spelling Sentence structure	Writing contains numerous errors in spelling, grammar, and/or sentence structure that severely interferes with readability and comprehension.	Errors in spelling and grammar exist that somewhat interfere with readability and/or comprehension.	Writing follows conventions of spelling and grammar throughout. Errors are infrequent and do not interfere with readability or comprehension.	The paper is basically error free in terms of mechanics. Grammar and mechanics help establish a clear idea and aid the reader in following the writer’s logic.
APA Elements Attribution Paraphrasing Quotations	No attempt at APA format.	APA format is attempted to paraphrase, quote, and cite, but errors are significant.	Using APA format, accurately paraphrased, quoted, and cited in many spots throughout when appropriate or called for. Errors present are somewhat minor.	Using APA format, accurately paraphrased, quoted, and cited throughout when appropriate or called for. Only a few minor errors present.
Style Audience Word Choice	Writing often slips into first and/or second person. Word choice is consistently inaccurate, unclear, or inappropriate for the audience.	Writing sometimes slips into first and/or second person. Word choice is sometimes inaccurate, unclear, or inappropriate for the audience.	Writing remains in third person throughout writing. Word choice is accurate, clear and appropriate for the audience.	Writing remains professional in third person throughout writing. Word choice is precise, appropriate for the audience, and memorable.