unit 5: debt Flashcards
annual fee:
a yearly fee that is charged by the credit card company for the convenience of the credit card
annual percentage rate (APR):
cost of borrowing money on an annual basis; takes into account the interest rate and other related fees on loan
credit card:
type of card issued by a bank that allows users to finance a purchase
credit report:
a detailed report of an individual’s credit history
credit score:
a measure of an individual’s credit risk; calculated from a credit report using a standardized formula
credit bureau:
an agency that researches and collects individual credit information and sells it for a fee to creditors so they can make a decision of granting loans to customers
debt snowball:
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
introductory rate:
an interest rate charged to a customer during the early states of a loan; the rate often goes up after a specific period of time
loan term:
time frame that a loan agreement is in force, and before or at the end of which the loan should either be repaid or renegotiated for another term
tax deduction:
an expense, such as a charitable contribution, that can be deducted from one’s taxable income
consumer:
a person or organization that uses a product or service
credit:
the granting of a loan and the creation of debt; any form of deferred payment
debt:
an obligation of repayment owed by one part to a second party
interest:
a fee paid by a borrower to the lender for the use of borrowed money; typically calculated as a percentage of the principal amount
loan:
a debt evidenced by a “note”, which specifies the principal amount, interest rate, and date of repayment
what is the second foundation of personal finance?
get out of debt
what percentage of Americans are living paycheck to paycheck?
70%
personal debt:
the amount of money an individual owes
is it smart to loan money to friends/family?
no, it could destroy relationships
is the lottery a good strategy to get wealthy?
no, it’s a tax on the poor and people who can’t do math
what are the three huge ways you lose when taking out a loan?
- payments: spreading the purchase of an automobile over 4-5 years hinders your ability to pay off debt or save money
- interest: you pay more than the sticker price
- depreciation: loss of value in your vehicle (biggest one)
what type of mortgage should you get when buying a new house?
no more than a 15-year fixed rate mortgage
what are home equity loans?
borrowing money against your house. they often come with higher, variable interest
what should you do every month regarding your credit card?
pay off your credit card every month so you don’t go into debt
foreclosure:
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
repossession:
process of a lender taking something back ( a car) for failure to make payments
bankruptcy:
a legal procedure for dealing with debt when an individual or business cannot repay what they owe
garnishment:
a court-ordered attachment that allows a lender to take monies owed directly from a borrower’s paycheck; only allowed as part of a court judgment
surrender of collateral:
in a bankruptcy proceeding, a debtor can give up property (collateral) to the creditor. in exchange for a clean slate
delinquency:
broadly referred to a borrower not being current on their payments
what does FICO stand for?
Fair Isaac Corporation
what are the 5 components of the credit score?
debt history, type of debt, duration of the debt, debt levels, and new debt
what are the 3 main credit bureaus?
Equifax, Experian, and TransUnion
___ ___ is the fastest-growing white-collar crime in North America today
Identity Theft
how can you protect your identity?
- check your credit card report annually
- never print your social security number on your checks
- create strong passwords
- purchase identity theft protection
what are 3 important things to do if you’re a victim of ID theft?
- file a police report and keep a copy of the report
- place a fraud-victim alert on your credit bureau report
- contact the fraud-victim division of the three main companies and furnish documentation
credit:
an arrangement to receive cash, goods, or service now and pay for them in the future
consumer credit:
the use of credit for personal needs
creditors:
an entity that lends money
what are some advantages of credit cards?
-convenient
- protection
- emergencies
- build credit
- instant gratification
- special offers and bonuses
what are some disadvantages of credit cards?
- interest
- overspending
- poor credit rating
- identity theft
closed-end credit:
credit as a one time loan that you will pay back over a specified period of time in payments of equal amounts
ex: mortgage, car loans
open-end credit:
credit as a loan with a certain limit on the amount of money you can borrow for a variety of goods and services
ex: visa, mastercard, department store cards
what should your debt to income ration be?
no more than 25%
finance charge:
the total amount you pay to use credit
minimum monthly payments:
smallest amount you can pay and remain a borrower in good standing
What are the 4 C’s of credit?
- character
- capacity
- capital
- collateral
Character:
- want to know what kind of person they’re lending money to
will you repay the loan?
Capacity:
- what is your job and how much is your salary
can you repay the loan (do you need a cosigner?)
capital:
- want to know if you have enough capital to pay back the loan
what is your net worth? (assets-liabilities)
Collateral:
- what assets do you have to secure the loan (house, car, etc.)
what if you do not repay the loan?
what is a good credit score?
anything above 700
what are ways to build your credit?
- open a checking or savings account
- build up your assets
- make payments on time
what should you do to keep a good credit score?
- make sure your report is accurate
- pay all your bills on time
- apply for credit only when you need it
- lower the balances on all your credit accounts
- pay off debt rather than move it around
Cosigning a loan:
you’re agreeing to be responsible for loan payments if the other person fails to make them
What are some ways to get out of debt?
- sell somethings
- part time jobs or overtime
- quit borrowing money
- create a repayment plan
what are the effects of bankruptcy?
- difficult to get credit
- on your credit report for 7-10 years
- remember don’t give up, there is a way to fix it
