Question

You pay off the $800.00 credit limit card from problem #3. What happens to your debt ratio?

Problem 3: A credit card gives 2% cash back on purchases. You purchase $1,685.90 in items with that card. What is your reward amount?

(1 point)
Responses

decreases by 10%
decreases by 10%

increases by 10 %
increases by 10 %

decreases by 4%
decreases by 4%

increases by 4%

Answer 1

To determine how paying off the $800 credit limit card affects your debt ratio, we'll need to understand what a debt ratio is. The debt ratio is calculated by dividing your total debt by your total assets.

In problem #3, you had $1,685.90 in purchases on the credit card, which indicates you were utilizing the credit limit, but the specific debt amount isn't the $800 limit; rather, it would depend on the balance on the card after any payments made or purchases made.

If you pay off the $800 credit card, your overall debt would decrease (assuming that was your only debt), which would lead to a lower debt ratio since the total debt would be lower while total assets presumably remain the same.

Thus, if the total debt decreases, the debt ratio will also decrease.

Since the options given include percentages, and without the exact figures of your total assets, it’s difficult to calculate the precise effect on your debt ratio. However, generally, paying off a credit card would lead to a decrease in the debt ratio.

Based on typical scenarios and the provided options, the most likely answer would be:

**decreases by 10%.**

This is an assumption based on common outcomes when debt is reduced significantly, but the specific percentage could vary based on total asset figures that are not provided here.