TOPIC 5 DONE Flashcards
What are the benefits of borrowing ?
- smooth out differences in timing between income and expenditure ( someone who is always short of funds at the end of the month can use borrowing to finance purchases until their next income payment)
- means that people can afford substantial purchases such as a car
- can by a house via a mortgage
What are the costs of borrowing?
Interest is payed on top of the debt that a borrow already owes to the creditor, the amount of interest paid is dependent on the borrowing product. Payday loans are much more expensive than a personal loan
What are the attitudes to debt?
- many people now see borrowing as a normal thing to do.
- younger people are more likely to borrow than adults that have been working for a longer time.
- A large amount of people borrow irresponsibly
- providers are also guilty of irresponsible lending ( providing credit to easily)
What is zero based budgeting?
This is when all income - expenditure should equal to zero
Expenditure should be categorised into mandatory, essential and discretionary
Any income left after all expenditure is paid should go towards debt repayments
What are the advantages and disadvantages of zero based budgeting ?
Advantages- expenditure is prioritised, aware of where money is spent, debt is paid of
Disadvantages- challenging and maybe unsustainable
What is envelope budgeting?
Each envelope represents a different type of expenditure
Only spend money from the corresponding envelope
What are advantages and disadvantages of envelope budgeting?
Advantages: makes people aware of how much money they are spending, expenditure is prioritised.
Disadvantages: bills usually come out of the bank via direct debit or standing order so it is time consuming if people were to draw the money out and put it back into the bank before the bill was due
What is a financial footprint ?
Files about a persons details of every loan a person has or had. It also shows how many loans a person has applied for
What is a consolidation loan?
A loan that is used to pay off debts a person already has.
What are the benefits of a consolidation loan
Low interest rates
Longer repayment period which reduces the monthly repayments
How can citizens advice help people who are in debt
Advice debtors and priorities their expenditure and debt
What are the two payment plans that the citizens advice will help individuals to set up to help manage their debt?
Informal payment plans and debt management plans
What is an informal payment plan?
An informal agreement between the debtor and creditor that enables the debtor to restructure their debt repayments so that they are more affordable
What is a debt management plan ?
The debtor pays one monthly payment that’s is then split between the creditors that they owe money to
How are country courts used by creditors
They decide how the debt is repaid
