Topic 5 Good and Bad debt

Question 1

What are the benefits of borrowing

Answer 1

Can cover a deficit
Make big purchases like a mortgage

Question 2

What is the “cost” of borrowing

Answer 2

The interest rate

Question 3

What financial products have the highest interest rate

Answer 3

Mortgages
Personal loans
Credit cards
Store cards
Payday loans

Question 4

What happens if you don’t pay back a secured loan

Answer 4

THe item the loan is “Secured on” will get taken away

Question 5

What happens if you don’t pay back an unsecured loan

Answer 5

The consumer can get a poor credit rating and can be taken to court, leading up to bankruptcy.

Question 6

How many homes were repossessed in 2009

Answer 6

46,000

Question 7

What does arrears mean

Answer 7

Money that should of been payed back already (late repayments)

Question 8

What things should people consider whilst taking out a loan

Answer 8

IF their are other loans around which are better

If the time period is good (25 years for a house is good,25 years for a phone is bad)

If the price of the loan corresponds to the item

Question 9

3 Websites to check your credit score

Answer 9

Experian
Equifax
TransUnion

Question 10

Who checks your credit score on websites

Answer 10

Lenders

Question 11

What methods do people in debt have

Answer 11

Consolidation loan
Use an organization like citizens advice

Question 12

What debts are the most important

Answer 12

Secured loans
Priority bills, (Council tax, child support)
A loan that you need (Need a car to get ot work)

Question 13

What happens in an informal payment plan

Answer 13

If you have money left over monthly, you should call your lender and show them your not buying luxury’s and usually they will agree to cheapen the loan repayments

Question 14

What is a debt management plan

Answer 14

Will contact the consumers lenders and sort out affordable repayments, the debtor then makes 1 monthly repayment to the debt management plan and they will pay the creditors for them

Question 15

What is the administration order

Answer 15

A debt management plan which instead of a company doing the repayments the court will, Debts must be under £5000

Question 16

In what situations can a debtor not use a debt management plan or an administration order.

Answer 16

The creditors might not agree to it
The debtors might not make the repayments
The debtors might have ccjs against them
have more than 5k in debt

Question 17

What is an individual voluntary agreement (IVA)

Answer 17

A licensed insolvency practitioner will set up agreements with creditors to pay of the debt.(Usually around 30-40% of the debt actually owed). THe debtor will pay normally around 200 a month to the practitioner for 5 years and after the rest of the debt will be discharged. This normally come with lots of fees.

Question 18

What is a debt relief order

Answer 18

Requirement - less than 30k debt
No more than £75 surplus
monthly
No more than 2k in assets
Can get a form off of a debt advice website(Stepchange eg) and this is sent off, repayments last for a year then the rest of the debt is discharged

Question 19

Explain bankruptcy.

Answer 19

Can occur when either you or a creditors asks the court to file you for bankruptcy. There are legal fees of £700. Repayments are made by selling your assets and the money being spread over the creditors.

Question 20

Disadvantages of bankruptcy

Answer 20

damaging financial footprint for 6 months
Embarrassment
Debtor can lose their house
Have to have basic bank account for 6 years
Cant be certain jobs