Quiz 3 Flashcards
1
Q
What makes up the majority of consumer debt?
A
Mortgages
2
Q
Home mortgage is not included in…
A
Consumer credit
3
Q
Medium priced loans vs Expensive loans
A
- Medium priced loans: commercial bank, savings and loan associations, and credit union loans
- Expensive loans: financial and check cashing companies; retailers such as car or appliance dealers; bank credit cards and cash advances
4
Q
Finance charge
A
The total dollar amount you pay to use credit. It includes interests costs, service charges, credit-related insurance premiums, or anything else
5
Q
APR
A
Annual Percentage Rate
- The annual rate charged for borrowing expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated w/ the transaction
- It’s the true rate of credit so you can compare rates w/ other sources of credit
- Interest rates and APR can be very different, so be sure to look at APR
6
Q
Fixed payment for closed end credit includes…
A
both principal and interest
- Interest is paid only on the amount of beginning unpaid principal for that period
- The more you have paid off, the more each payment goes towards paying off the remaining cost as opposed to paying off interest
7
Q
Long term vs short term loans
A
- Longer term loans tend to have lower payments, more total interest paid and usually higher interest rates b/c it is riskier to the lender
- Shorter term loans tend to have higher payments, less total interest paid and usually a lower interest rate
8
Q
Average daily balance method
A
- One of the ways creditors calculate how much interest you owe (and the only one we need to know)
1) add your balances for each day in the filing period
2) divide this total by the number of days in the billing period
3) multiply this average by the monthly interest rate - Sometimes new purchases are included in the calculation (for our purposes they WILL BE INCLUDED)
9
Q
Minimum payment warning
A
- The Credit CARD Act requires creditors to put this in people’s monthly statements, in which it shows what could happen if people only pay the minimum every month
10
Q
Top reasons consumers don’t make credit payments (default)
A
- Excessive use of credit accounts for or at least contributes in 39% of cases
- Unemployment/reduced income accounts for or at least contributes in 24% of cases
11
Q
Warning Signs of Debt Problems I may not think of
A
- Paying only the minimum balance each month
- Intentionally using overdraft protection
- Using savings to pay routine bills such as food
- Not talking to your partner about money, or only talking to your partner about money
- Putting off medical or dental visits because you can’t afford them now
12
Q
Consumer Credit Counseling Service (CCCS)
A
A non-profit which is supported by contributions from banks, merchants, etc, and provide services such as:
- Education about credit and budgeting
- Help w/ your spending plan
- Debt counseling services for those with serious financial problems
- Can help develop a debt consolidation plan and negotiate reduced interest rates
13
Q
Bankruptcy
A
- A legal process in which some or all of the assets of a debtor are distributed among creditors because the debtor is unable to pay his or her debts
Typical personal bankruptcy: - Submit a petition to the court that lists assets and liabilities and pay a filing fee
- Assets are sold to pay creditors, but you can keep some (modest car, for example)
- You will no longer owe retail store charges, bank credit card charges, unsecured loans, and unpaid hospital or physician bills.
- You will still owe certain taxes and fees, child support and alimony, educational loans, and debts from willful or malicious acts
Bankruptcy Lite: - A voluntary plan proposed to the bankruptcy court for those who want to pay a portion of their debt over a period of up to 5 years
- Must have regular income
- Can’t have more than $250,000 unsecured debt or $750,000 in secured debt
- Payments are made to a trusted who distributes the money to your creditors
- May be able to keep your property
- Cost to the debtor includes court costs, attorney’s fees and trustee’s fees and costs
14
Q
Things you should do/have in place before investing
A
- Work to balance your budget
- Pay off high interest credit card debt first
- Start an emergency fund with 3-9 months of living expenses that you can access quickly
15
Q
LOC
A
- Line of credit
- a short term loan approved before the money is needed
