Future Business Leaders of America (FBLA) Personal Finance Practice Test

Which of the following represents a disadvantage of credit?

1. Easier returns

2. Potential for debt accumulation

3. Immediate payment

4. Reward points

The correct answer is: Potential for debt accumulation

The potential for debt accumulation represents a significant disadvantage of using credit. When individuals utilize credit, they can borrow money up to a certain limit, which allows them to make purchases without having the immediate cash available. However, this convenience can lead to spending beyond one’s means and the accumulation of debt over time. If the borrowed amount is not paid off promptly, individuals may incur interest charges that increase their total debt burden. This situation can spiral out of control if not managed carefully, leading to financial stress and long-term consequences such as a lower credit score, difficulty in securing loans or mortgages, and a negative impact on overall financial health. Therefore, while credit can offer benefits such as rewards or flexibility, the risk of accruing unmanageable debt highlights its potential drawbacks. Understanding how to balance credit use and avoid excessive borrowing is crucial for maintaining financial stability.