Chapter 04 - Debt Flashcards
Cost of borrowing money on an annual
basis; takes into account the interest
rate and other related fees on a loan
Annual Percentage Rate
A decrease or loss in value
Depreciation
A detailed report of an individual’s
credit history
Credit Report
Time frame that a loan agreement is
in force, and before or at the end of
which the loan should either be repaid
or renegotiated for another term
Loan Term
Type of card issued by a bank that allows
users to finance a purchase
Credit Card
A measure of an individual’s credit risk;
calculated from a credit report using a
standardized formula
Credit Score
A yearly fee that’s charged by the credit
card company for the convenience of the
credit card
Annual Fee
Preferred method of debt repayment;
includes a list of all debts organized from
smallest to largest balance; minimum
payments are made to all debts except
for the smallest, which is attacked with
the largest possible payments
Debt Snowball
“The borrower is ________ to the lender.”
slave
Explain why financing a car is a bad idea.
You will be paying interest in addition to the purchase price. Financing allows us to buy higher priced vehicles that we usually cannot really afford.
Myth or Truth: By co-signing a loan you are helping a friend or relative.
MYTH: The bank usually requires a co-signer for people who aren’t likely to pay back the loan. You would be taking on that risk of damaging your own credit.
Myth or Truth: The FICO score is really an “I Love Debt” score. It is not a measure of winning financially.
Truth: If you had no debt, but had $10 million in the bank, you would still have a bad FICO score.
Explain using the debt snowball method of paying off debt.
Make the minimum payment on all of your debts, except the smallest, which you attack with the most amount of money you can pay. Continue until all debts are paid.
Process of a lender taking something back (like a car), for failing to make payments.
Repossession
Broadly refers to a borrower not being current on his or her payments.
Delinquency
A legal procedure for dealing with debt when an individual or business cannot repay what they owe.
Bankruptcy
A court order that allows a lender to take monies directly out of a borrower’s paycheck.
Garnishment
Steps Out of Debt:
1. Quit borrowing more _________ .
money
Steps Out of Debt:
2. You must _________ money.
save
Steps Out of Debt:
3. ______something.
Sell
Steps Out of Debt:
4. Get a __________ job or work overtime.
temp/part-time
Steps Out of Debt:
5. Use the _________ snowball method.
debt
Explain the difference between a credit card and a debit card.
With credit cards you are financing your purchases, with debit cards you are using money you already have in your checking account.
When buying a house, which mortgage rate plan should I get preferably? 15 or 30 year and with out without down payment?
15 Year with down payment
Why is a Adjustable Rate Mortgage (ARM) a bad idea?
If your rate is adjusted higher, it may become too high to afford - and you end up losing your home.
Myth or Truth: Overall, you will spend 12-18% less when you pay things with cash instead of credit card - because spending cash is painful.
TRUTH
The fee a credit card company charges for the use of their credit card
Annual Fee
The maximum amount of money the lender is willing to loan an applicant
Credit Limit
The total cost of using credit including interest and fees
Finance Charge
The charge for setting up a loan (often associated with home loans)
Origination Fee
The length of time you have to pay the loan. Remember, the longer the loan, the lower your monthly payment, the greater the interest paid.
Loan Term
The length of time that the lender charges no interest on money borrowed when paying off your balance in full each month
Grace Period
The cost of the loan each year expressed as a percentage.
Annual Percentage Rate
Lower interest rate offered by credit card companies, usually for a short period of time, to entice you to sign up for credit with them. Eventually, the rate expires and a new “increased” rate takes effect.
Introductory Rate
