Chapter 04 - Debt

Question 1

Cost of borrowing money on an annual
basis; takes into account the interest
rate and other related fees on a loan

Answer 1

Annual Percentage Rate

Question 2

A decrease or loss in value

Answer 2

Depreciation

Question 3

A detailed report of an individual’s
credit history

Answer 3

Credit Report

Question 4

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

Answer 4

Loan Term

Question 5

Type of card issued by a bank that allows
users to finance a purchase

Answer 5

Credit Card

Question 6

A measure of an individual’s credit risk;
calculated from a credit report using a
standardized formula

Answer 6

Credit Score

Question 7

A yearly fee that’s charged by the credit
card company for the convenience of the
credit card

Answer 7

Annual Fee

Question 8

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

Answer 8

Debt Snowball

Question 9

“The borrower is ________ to the lender.”

Answer 9

slave

Question 10

Explain why financing a car is a bad idea.

Answer 10

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.

Question 11

Myth or Truth: By co-signing a loan you are helping a friend or relative.

Answer 11

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.

Question 12

Myth or Truth: The FICO score is really an “I Love Debt” score. It is not a measure of winning financially.

Answer 12

Truth: If you had no debt, but had $10 million in the bank, you would still have a bad FICO score.

Question 13

Explain using the debt snowball method of paying off debt.

Answer 13

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.

Question 14

Process of a lender taking something back (like a car), for failing to make payments.

Answer 14

Repossession

Question 15

Broadly refers to a borrower not being current on his or her payments.

Answer 15

Delinquency

Question 16

A legal procedure for dealing with debt when an individual or business cannot repay what they owe.

Answer 16

Bankruptcy

Question 17

A court order that allows a lender to take monies directly out of a borrower’s paycheck.

Answer 17

Garnishment

Question 18

Steps Out of Debt:
1. Quit borrowing more _________ .

Answer 18

money

Question 19

Steps Out of Debt:
2. You must _________ money.

Answer 19

save

Question 20

Steps Out of Debt:
3. ______something.

Answer 20

Sell

Question 21

Steps Out of Debt:
4. Get a __________ job or work overtime.

Answer 21

temp/part-time

Question 22

Steps Out of Debt:
5. Use the _________ snowball method.

Answer 22

debt

Question 23

Explain the difference between a credit card and a debit card.

Answer 23

With credit cards you are financing your purchases, with debit cards you are using money you already have in your checking account.

Question 24

When buying a house, which mortgage rate plan should I get preferably? 15 or 30 year and with out without down payment?

Answer 24

15 Year with down payment

Question 25

Why is a Adjustable Rate Mortgage (ARM) a bad idea?

Answer 25

If your rate is adjusted higher, it may become too high to afford - and you end up losing your home.

Question 26

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.

Answer 26

TRUTH

Question 27

The fee a credit card company charges for the use of their credit card

Answer 27

Annual Fee

Question 28

The maximum amount of money the lender is willing to loan an applicant

Answer 28

Credit Limit

Question 29

The total cost of using credit including interest and fees

Answer 29

Finance Charge

Question 30

The charge for setting up a loan (often associated with home loans)

Answer 30

Origination Fee

Question 31

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.

Answer 31

Loan Term

Question 32

The length of time that the lender charges no interest on money borrowed when paying off your balance in full each month

Answer 32

Grace Period

Question 33

The cost of the loan each year expressed as a percentage.

Answer 33

Annual Percentage Rate

Question 34

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.

Answer 34

Introductory Rate