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Free response · 3.2 Borrowing, Credit, and Debt
Exam-style personal-finance task: read a household's situation and write a recommendation. Suggested time 12–13 minutes.
FRQ 2 — Personal finance (household recommendation)
Priya earns $3,400 a month after taxes. Her monthly expenses are $2,900, which include a $350 car-loan payment (secured, 6%), a $180 personal-loan payment (unsecured, 12%), and $220 in minimum payments on $6,500 of credit-card debt at 25%. She has $900 in savings. Her credit score dropped last year after three late credit-card payments. She wants to rent a better apartment next year, and the landlord will check her credit report.
(A) Explain how Priya's credit-card debt affects her financial condition, using the framework. 1 pt
(B) Recommend which debt Priya should repay first and ONE action to improve her credit score before the apartment application. 1 pt
(C) Using Priya's numbers, explain why she should NOT use a payday loan to pay the credit card faster, and identify a better source of funds. 1 pt