Personal Financial Management - Chapter 4 Flashcards
Co-signing
Taking responsibility for someone else’s loan
Cash advance
Charges of 400% and up for their services
Loaning money to a friend or relative
Strains / destroys relationships
You take responsibility for a loan that probably won’t get paid back if you…
Co-sign a loan
80% of…
Millionaires are first generation millionaires –> they started with nothing
What services are only out to benefit the owners of their company? (4)
Cash advance
Rent-to-own
Title pawning
Tote-the-note-lots
The lottery and gambling are…
Forms of taxes that target the poor and people who can’t do math
The typical millionaire drives…
Reliable used cars in order to avoid car payments
What is the average car payment per month over how many months?
$464/per month for over 64-months
Leasing (3)
The most expensive way to operate and finance a vehicle
Can write-off your paid-for car on taxes, if you own a business, without paying payments
Can minimize money lost on things that go down in value by buying slightly used
A new car loses…
70% of its value in its first 4 years
Never take out more than a __ __ ___ rate mortgage
15 year fixed
It’s never wise to take out an ___ or ____ _____ if you know you’ll be moving, because…. (2)
- ARM or a balloon mortgage
- they will foreclose, the ARM transfers the risk of higher interest rates to you
A debit card card…
Can do whatever a credit card can do but is better (can rent a car and can make a purchase online, or by phone)
You spend ___ to ___ less when using ____ rather than ____ (3)
12-18%
Cash
Plastic
Teens are a huge target of… (2)
Credit card companies
About 80% of college graduates have credit card debt before they even get a job
The home equity loan is BAD for…
Consolidation and isn’t a substitute for the emergency fund
Debt consolidation is bad because… (3)
It saves little or no interest
You can’t borrow your way out of debt
Smaller payments = more time spent in debt
The borrower is a ___ to the lender
SLAVE
The fastest growing group of bankruptcy filers consist of…
People under 25 years old
Car payments are…
NOT a way of life
You don’t need to build your credit score by…
Applying for a credit card
Best way to beat debt?
Quit borrowing money and live on less than what you make
Reasons people think a home equity loan is good (2)
Tax refund
Substitute for emergency fund
Pay off debts….
SMALLEST TO LARGEST
What appreciates and what depreciates? (2)
The value of your house appreciates
The value of your car depreciates
First charge card in the U.S.?
Diners club
JC penny =
James cash penny —> didn’t like debt
The first debt in the debt snowball is the one with the highest interest rate
False
78% of Americans…
Don’t pay off their card every month
Why do people go into debt when they know that they will have to pay more for an item once they figure interest?
You spend 12-18% more than if you use cash
Why are teens such a major target of the credit card industry?
Adults have all the credit card offers they can get, so they advertise to teens.
Why is it better to buy a used car instead of a brand new vehicle?
The car loses value when you leave the lot so you pay more than its worth
Annual fee
Fee charged by a credit card company for the use of their credit card
Annual percentage rate (APR) (2)
Cost of borrowing money on an annual basis
Takes into account the interest rate and other related fees on a loan
Adjustable rate mortgage (ARM) (3)
Home loan secured by a deed of trust or mortgage in which the interest rate will change periodically (I.e. Annually)
Typically adjusted based on a published index such as the treasury bill or LIBOR
Brought on as a result of high interest rates in the early 1980s as a way for banks to transfer the risk of higher rates to the consumer
Balloon mortgage (2)
Home loan in which the sum of the monthly payments is insufficient to repay the entire loan
A final payment comes due, which is a lump sum of the remaining principal balance
Credit
Money owed/loaned
Credit card
Tool used to finance a purchase
Credit limit
The maximum amount of credit a lender will extend to a customer
Debit card (3)
Type of card, often bearing the seal of a major credit card company
issued by a bank and used to make purchases
unlike a credit card, the $ comes directly out of a checking account (aka a check card)
Debt consolidation
Act of combining all debts into one monthly payment, typically extending the terms and the length of time required to repay the debt
Debt snowball (3)
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
Depreciation (2)
A decline in the value of property
Opposite of appreciation
Finance charge
The total dollar amount you pay to use credit
Foreclosure
The process by which the holder of a mortgage sells the property of a homeowner who has not made interest and/or principal payments on time as stipulated in the mortgage contract
Grace period
Time period during which a borrower can pay the full balance of credit due with no finance charges
Home equity loan (HEL) (2)
Credit line offered by mortgage lenders that allows a homeowner to borrow money against the equity in their home
Uses your home as collateral to borrow money
Introductory rate (3)
A temporary interest rate
Advertised as a low APR to entice customers to apply for a credit card
After the introductory period, the interest rate will increase to the regular APR
Lease
A long-term rental agreement, and a form of secured long-term debt
Loan term
The length of time you have to pay off a loan
Myth
Information that’s been passed on but isn’t true
Paradigm (2)
Your belief system
The way you see or perceive things
Tax deduction
An expense that a tax payer is allowed to deduct from taxable income
