Final answer:
Gerald used a credit card to pay for his new shoes, which allows him to make monthly payments. The payments consist of principal and interest, and paying off the balance quickly avoids high interest costs. Borrowing through credit cards is a common practice for immediate purchases with future repayment.
Step-by-step explanation:
Gerald used a credit card to buy his new pair of shoes. This form of payment allows him to make small monthly payments to the financial institution that issued the card. Each payment consists of a portion that reduces the principal—the original amount of the purchase—and an interest component. The longer the principal remains unpaid, the more interest Gerald will accumulate, making the shoes more expensive over time.
It's important for individuals like Gerald to pay off their credit card balances as quickly as possible to avoid incurring high interest costs. For instance, if you carry a credit card balance and only make the minimum monthly payment, most of your payment may go towards the interest rather than reducing the principal. This means it could take a very long time to pay off the entire balance owed.
Consumers and businesses often rely on borrowing to make purchases or investments that they cannot afford upfront, expecting that they will be able to pay back the borrowed amount in the future when their financial situation improves. Credit cards are a common method of borrowing for such purposes, reflecting the demand for financial capital at any given interest rate.