debt management

Question 1

credit in 3 different forms

Answer 1

• regular (30 day) account
• revolving account
• retail installment account

Question 2

closed end account

Answer 2

-SINGLE purchase with set repayment schedule
-SEPARATE retail installment contract for each purchase
-LARGE amounts and LONGER period of time

Question 3

regular charge account

Answer 3

• credit account with a merchant 🏪 think like sherwin williams
• complete payment at end of billing cycle avoids all interest charges

Question 4

revolving credit account

Answer 4

-open-end acct w/established line of credit 💳
-rules for minimum payments
- CREDIT CARDS and PERSONAL LINES OF CREDIT

Question 5

biggest cost associated with credit

Answer 5

interest you pay

Question 6

adjusted balance method

Answer 6

balance is outstanding balance at BEGINNING of billing cycle minus payments and credits made during billing cycle - how is it adjusted? what happens?

Question 7

average daily balance method
excluding new purchases

Answer 7

• sum of outstanding balances for every day in the billing cycle (excluding new purchases and deducting payments & credits) divided by # of days in billing cycle
• this results in the smallest monthly finance charges

Question 8

previous balance method

Answer 8

-outstanding balance at the BEGINNING of t/billing cycle
-no credit is given for payment made in the meantime
-primarily in store charge accounts

Question 9

Card act of 2009

Answer 9

requires Cos to restore you to original APR if you make on-time payments for 6 months after your penalty rate

Question 10

Credit card rates vary based on what rate

Answer 10

Prime rate

Question 11

How to divide APR to daily rate

Answer 11

APR / 365 * 100 =

.18 / 365 * 100 = .049

Question 12

Find Average Daily Balance

Answer 12

If you have a balance of $1000 on a 30 day billing cycle your avg balance is $1000

Question 13

Calculate monthly finance charge

Answer 13

AVG daily balance * APR * # Days in Billing Cycle / 365

((1000 * .18) * 30) / 365 = $14.79 in interest charges for one billing cycle which is added to your balance and minimum payment if you don’t pay it off during the grace period

Question 14

Float

Answer 14

number of interest free days in a billing cycle
typically 25 days and represents the time between the receipt of the monthly statement and the due date

Question 15

3 factors: ability to repay a loan 3 c’s

Answer 15

Character - past history
Capacity - debt/income ratio
Capital - net worth

Question 16

credit report

Answer 16

document of payment history

Question 17

How long can bankruptcy info be reported

Answer 17

10 years

Question 18

Student loan default reported for how long

Answer 18

7 years after certain guarantor actions

Question 19

5 credit factors

Answer 19

• Past Delinquency
• way credit has been used
• length of credit history
• new credit: # of times
• Types of credit used

Question 20

Current ratio

Answer 20

current assets/current liabilities

Question 21

Debt Ratio

Answer 21

Total Debt/Total Assets

Question 22

Chapter 7 has income limit?

Answer 22

Yes - the higher the disposable income the more likely they will need to file for Chapter 13

Question 23

Max liability per credit card

Answer 23

$50

Question 24

If you have multiple cards and the question is asking how much your liability is - what to be aware of

Answer 24

Your liability per card is $50 but if you have less than that, say $30 on a card, your liability is $30

Question 25

Consumer Debt payments such as credit cards and vehicle loans should not exceed WHAT percent of WHAT income

Answer 25

20% of NET income - this makes sense because NET is what you’re taking home. It’s what you actually have to pay the debt

Question 26

TOTAL DEBT payments should not exceed WHAT percent of WHAT income

Answer 26

Think of total debt. This is the back end ratio. This should not exceed 36% of GROSS income

Question 27

PITI is a gross or net income

Answer 27

GROSS look at that gross PITI

Question 28

Consumer debt is a what calc vs PITI and Back End ratio

Answer 28

Consumer debt is NET
PITI and Back end are GROSS
the PITI and the Back end were gross tbh