Topic 5: Good Debt, Bad Debt Flashcards
What are the benefits of borrowing
fund large item and pay later
keep financial plans stable
Average time of mortgage loan
25 years
What is the cost of borrowing
APR, interest is variable based on credit history
what is representative APR
rate offered to 51% of people, mostly used in marketing
list from 1 to 4 the loans with highest to lowest APR’s
- payday
- credit
- personal loans
- mortgage
What is hardcore debt
debt that a person cannot repay at current time
What was average credit card rate in November 2020
20.91%
Name 3 credit reference agencies
- Experian
- Equifax
- TransUnion
Financial Footprints
the record of every transaction made, allowing providers to get image of consumer
Country court Judgement
judgement from country court to person who doesn’t respond to court action from providers
Consolidation loan
Loan to pay off different debts, meaning just one place to pay.
can be secured to home
small print
legal terms and conditions attached to product
Informal payment plans
speak to creditor, explain situation and agree to reduced monthly repayments
Debt management plans
detailed plan from debt management company sent to creditors to help repayment
administration order
repayment plan by county court is unsecured debt is less than £5000
paid to court, then to creditor
What is individual voluntary arrangement
what is the criteria
formal alternative to bankruptcy comprising of a contractual arrangement
creditors must make up 75% of debt
supervised by insolvency practitioner
usual term 5 years
costs, IP usually 2500 and annual fee of 1000
Debt relief order
order if cant repay debt,
fees included but heaper then bankruptcy,
debts frozen and discharged after 12 months
Bankruptcy
owed £5000 on unsecured loan can declare bankruptcy
official IP takes over finances
period before discharge usually 12 months but damages footprints for 6 years
expensive
Drawbacks of bankruptcy
cant access products
loss of assets
cant join army and police
potential embarrassment
What 4 places offer DMP
- Stepchange Debt charity
- national debt line
- payplan
- The debt advice foundation