debt management Flashcards
credit in 3 different forms
- regular (30 day) account
- revolving account
- retail installment account
closed end account
-SINGLE purchase with set repayment schedule
-SEPARATE retail installment contract for each purchase
-LARGE amounts and LONGER period of time
regular charge account
- credit account with a merchant 🏪 think like sherwin williams
- complete payment at end of billing cycle avoids all interest charges
revolving credit account
-open-end acct w/established line of credit 💳
-rules for minimum payments
- CREDIT CARDS and PERSONAL LINES OF CREDIT
biggest cost associated with credit
interest you pay
adjusted balance method
balance is outstanding balance at BEGINNING of billing cycle minus payments and credits made during billing cycle - how is it adjusted? what happens?
average daily balance method
excluding new purchases
- 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
previous balance method
-outstanding balance at the BEGINNING of t/billing cycle
-no credit is given for payment made in the meantime
-primarily in store charge accounts
Card act of 2009
requires Cos to restore you to original APR if you make on-time payments for 6 months after your penalty rate
Credit card rates vary based on what rate
Prime rate
How to divide APR to daily rate
APR / 365 * 100 =
.18 / 365 * 100 = .049
Find Average Daily Balance
If you have a balance of $1000 on a 30 day billing cycle your avg balance is $1000
Calculate monthly finance charge
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
Float
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
3 factors: ability to repay a loan 3 c’s
Character - past history
Capacity - debt/income ratio
Capital - net worth
credit report
document of payment history
How long can bankruptcy info be reported
10 years
Student loan default reported for how long
7 years after certain guarantor actions
5 credit factors
- Past Delinquency
- way credit has been used
- length of credit history
- new credit: # of times
- Types of credit used
Current ratio
current assets/current liabilities
Debt Ratio
Total Debt/Total Assets
Chapter 7 has income limit?
Yes - the higher the disposable income the more likely they will need to file for Chapter 13
Max liability per credit card
$50
If you have multiple cards and the question is asking how much your liability is - what to be aware of
Your liability per card is $50 but if you have less than that, say $30 on a card, your liability is $30
Consumer Debt payments such as credit cards and vehicle loans should not exceed WHAT percent of WHAT income
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
TOTAL DEBT payments should not exceed WHAT percent of WHAT income
Think of total debt. This is the back end ratio. This should not exceed 36% of GROSS income
PITI is a gross or net income
GROSS look at that gross PITI
Consumer debt is a what calc vs PITI and Back End ratio
Consumer debt is NET
PITI and Back end are GROSS
the PITI and the Back end were gross tbh
