R4| Monday, October 21, 2019 THE WALL STREET JOURNAL.
JOURNAL REPORTS | WEALTH MANAGEMENT
C. No, it doesn’t make sense
D. Yes, as long as you pay your balance
off within 18 monthsPaying $150 a month, how long would
it take to pay off a $8,602 balance with
a 17% interest rate, and how much interest
would you pay?A. 75 months, $3,813 in interest
B. 92 months, $4,556 in interest
C. 119 months, $9,242 in interest
D. 160 months, $11,557 in interestIf you’re late on a credit-card payment,
your issuer could do which of the fol-
lowing:A. Reduce your credit limit
B. Raise your interest rate to 29.9%
C. Report you to the credit-reporting firms
D. All of the aboveFor purchases under $10, which of the
following methods of payment is most
popular?A. Cash B. Debit C. Credit D. CheckWhen Chase Sapphire Reserve offered a
100,000-point sign-up bonus in 2016, it
was so popular that:A. Chase ran out of the metal used to
make the cards
B. J.P. Morgan Chase filed for
bankruptcy protection
C. Airlines stopped accepting the points
D. Chase eliminated the cardThe original Diners Club card, the first
universal credit card introduced in 1950,
was made out of what material?A.. Cardboard B. Wood
C. Carbon paper D. PlasticCredit cards issued by retailers often
offer “deferred interest,” meaning no in-
terest paid for a promotional period. What
happens if you have a $1 balance after the
promotional period?A. You begin paying interest on $1
B. You’re charged all accrued interest
C. Home Depot takes back the sink
D. The retailer erases your balance
outstanding as a courtesyWhat is the average annual percent-
age rate for a retail-store-only credit
card?A. 27.5% B. 15.4% C. 20.3% D. 7.5%
And now a bonus question, just for fun...In the 1987 movie “Planes, Trains and
Automobiles,” Steve Martin’s charac-
ter, Neal Page, carried a Visa card, a gas
card and a Neiman Marcus card. John
Candy’s character, Del Griffith, carried a
charge card for which retailer?A. Target
B. Sears
C. Zales
D. Chalmers Big & Tall Men’s ShopTest How Much You Know About Credit Cards
W
hat you don’t know about
your credit cards can cost
you cash.
And there may be a
whole lot you don’t know.
Now is the time to find
out. What follows are 10
(plus a bonus) questions
that test your knowledge of how the average
family uses credit cards, as well as what indi-
vidual consumers need to know to best use
their cards.
So before you charge your next purchase,
you might want to see just how savvy you are.How long are credit-card debtors in
debt?A. 56%foratleastayear
B. 37% for at least two years
C. 23%foratleastthreeyears
D. 14% for at least five yearsWhat percentage of families use credit
cards strictly for convenience, not to
carry a balance?A. 85% B. 12% C. 58% D. 31%Does it make financial sense to pursue
credit-card points while maintaining a
balance?A. Yes, if you can get 3% back at gas
stations and grocery stores
B. Only if you get 1.5% back on most other
purchasesBYCHRISKORNELIS
Answers
1. All are correct, according to a
CreditCards.com poll. Ted Ross-
man, industry analyst for Credit-
Cards.com, says that 7% of
credit-card debtors can’t remem-
ber how long they’ve been in
debt.
2. C. 58%, according to a report
from the Federal Reserve.
3. C. Says Mr. Rossman: “Rule No.
1foranyrewardstrategyisyou
have to pay those bills in full.”
4. C. 119 months, $9,242 in inter-
est, according to Bankrate.com’s
credit-card payoff calculator.
$8,602 is the average credit-card
debt held per household that car-
ries a balance, according to an
analysis of Federal Reserve data
by WalletHub.com, and the aver-
age interest rate for interest-
charging credit cards is about
17% according to the Fed.
5. D. All of the above. Mr. Ross-
man says companies don’t typi-
cally report late payments to the
reporting firms until payments
are 30 days past due, and raise
rates to the penalty rate of 29.9%
until they are 60 days late.
6. A. According to a Credit-
Cards.com poll released earlier
this year, 49% of adults in the
U.S. pay with cash for in-person
purchases under $10, while 35%
use debit and 16% use credit.
7. A. Chase ran out of the metal
used to make the cards. The card
has since downshifted to a
50,000-point bonus sign-up offer.
8. A. Cardboard.
9. B. Mr. Rossman says cards is-
sued by retailers often offer
“deferred interest,” meaning
that even if you have a $1 bal-
ance at the end of the promo-
tional period, you’ll be charged
all of the interest that accrued
over the promotional time. Gen-
eral-purpose cards with a zero-
interest promotional period, on
the other hand, typically do not
charge or accrue any interest
over the zero-interest promo-
tional period.
10. A. According to a recent
CreditCards.com survey, the aver-
age store-only credit card annual
percentage rate (APR) is 27.5%,
up 29 basis points in 2019.
Bonus: D. “It’s a seven-outlet
chain in the Pacific Northwest.
Great stuff. Unfortunately, it does
us no good here.”FROM TOP: PARAMOUNT/EVERETT COLLECTION; TIFFANY DOOLITTLEShane Smith and Toni Smith live in
Paradise, Calif., a town ravaged last
year by wild fires, in which they suf-
fered a small amount of property
loss. The Smiths have three chil-
dren, ages 12, 8 and 6, and are con-
sidering expanding Mr. Smith’s chi-
ropractic business to the Caribbean
and buying a second home there.
The Smiths earn about
$128,000 annually. Mr. Smith, 42,
brings in about $88,000 after
taxes. Ms. Smith, 46, earns $40,00
from the In-Home Supportive Ser-
vices program run by the Califor-
nia Department of Social Ser-
vices, which pays her to act as a
caretaker for their 8-year-old, who
has Down syndrome.
The couple’s home is valued at
about $750,000 and has a
$275,000 mortgage outstanding.
Mr. Smith values his business at
about $200,000, though it carries
some debt; about $20,000 on a
business credit card and $24,000
on a business line of credit. The
couple owe $130,000 in student
loans with a 1.8% interest rate; and
about $18,500 in credit-card debt
across four additional cards.
The Smiths own their cars out-
right and have $24,000 in a sav-
ings account.
Mr. Smith has a whole-life in-
surance policy, which has a guar-
anteed death benefit of $750,000
and allows him to borrow or with-draw against some of those funds
in an emergency. The couple also
has two term-life policies that pay
out $750,000. A special-needs
trust, created for their child with
Down syndrome, is the beneficiary
of all three insurance policies.
Their monthly family expenses
include: $1,950 for the mortgage,
home insurance and property taxes;
$850 for the life-insurance policies;
$700 for credit-card bills and paying
down the debt; $365 to repay stu-
dent loans; $1,300 for groceries and
eating out; $600 for utilities, includ-
ing cellphone and satellite TV; $195
on gas; $220 on school fees; and
$165 for car insurance.ADVICE FROM A PRO: Bill Lalor, a
certified financial planner at
Massey Quick Simon & Co. in Mor-
ristown, N.J., suggests that before
looking into buying a second home
or expanding the business, they
should try to set up a multiyear
plan to pay down debt and build
up their savings.
First on the list should be tack-
ling the credit-card debt, he says.
A home-equity line of credit could
be a short-term solution. Mr. Lalor
thinks they’ll be approved because
they have a lot of equity in their
home and their debt-to-equity ra-
tio seems reasonable. That would
lower the interest rate they are
paying on that card debt to about
6% from about 19%. A $50,000 or
even $100,00 home-equity line ofcredit would also provide emer-
gency funds, though Mr. Lalor em-
phasizes this should be an interim
solution. They should not plan on
carrying the home-equity loan
over an extended period.
Mr. Lalor also suggests consoli-
dating the business debt into a
business line of credit with the
lowest rate possible. He says
$40,000 in debt on a business val-
ued at $200,000 is high.Ifthe1.8%rateonthestudent
loans is fixed, Mr. Lalor advises
against rushing to repay that debt.
He also advises against cashing
out of the whole-life policy as a
way to fund an emergency because
the death benefit is so critically im-
portant to the child with Down
syndrome. He thinks the whole-life
insurance makes sense because it
will fund the special-needs trust.
The Smiths should build aboutsix months’ worth of expenses, or
about $35,000, in an emergency
fund. They should look at their
budget and credit-card statements
to find an additional $250 to $500
a month to add to the fund.
The Smiths also should explore
setting up a tax-advantaged retire-
ment account through the busi-
ness, such as a solo 401(k) or SEP
IRA. Or they could open a tradi-
tional IRA or spousal IRA separate
from the business, he says. With
all of these accounts, contributions
are tax deductible federally and
the money can grow tax-deferred.
With the solo 401(k), Mr. Smith
can save more because he can
make contributions as an em-
ployee and employer. However, Mr.
Lalor says, opening a traditional
IRA or spousal IRA might be eas-
ier, as a 401(k) or SEP IRA usually
requires hiring an accountant.
Finally, Mr. Lalor recommends
the family shop around for more
comprehensive health insurance. If
Mr. Smith buys a policy through
his business, he may be able to
offset the premiums with a tax
deduction since it could be consid-
ered a business expense.Ms. Wardis a writer in Mendham,
N.J. Email her [email protected].THE GAME PLAN
Advice for a Couple That Has Way Too Much Credit-Card Debt
A home-equity line of credit
could help the Smiths
tackle credit-card debt.BYLISAWARD
Steve Martin and
John Candy in
‘Planes, Trains
and Automobiles’