unit 5: debt

Question 1

annual fee:

Answer 1

a yearly fee that is charged by the credit card company for the convenience of the credit card

Question 2

annual percentage rate (APR):

Answer 2

cost of borrowing money on an annual basis; takes into account the interest rate and other related fees on loan

Question 3

credit card:

Answer 3

type of card issued by a bank that allows users to finance a purchase

Question 4

credit report:

Answer 4

a detailed report of an individual’s credit history

Question 5

credit score:

Answer 5

a measure of an individual’s credit risk; calculated from a credit report using a standardized formula

Question 6

credit bureau:

Answer 6

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

Question 7

debt snowball:

Answer 7

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

Question 8

introductory rate:

Answer 8

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

Question 9

loan term:

Answer 9

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

Question 10

tax deduction:

Answer 10

an expense, such as a charitable contribution, that can be deducted from one’s taxable income

Question 11

consumer:

Answer 11

a person or organization that uses a product or service

Question 12

credit:

Answer 12

the granting of a loan and the creation of debt; any form of deferred payment

Question 13

debt:

Answer 13

an obligation of repayment owed by one part to a second party

Question 14

interest:

Answer 14

a fee paid by a borrower to the lender for the use of borrowed money; typically calculated as a percentage of the principal amount

Question 15

loan:

Answer 15

a debt evidenced by a “note”, which specifies the principal amount, interest rate, and date of repayment

Question 16

what is the second foundation of personal finance?

Answer 16

get out of debt

Question 17

what percentage of Americans are living paycheck to paycheck?

Answer 17

70%

Question 18

personal debt:

Answer 18

the amount of money an individual owes

Question 19

is it smart to loan money to friends/family?

Answer 19

no, it could destroy relationships

Question 20

is the lottery a good strategy to get wealthy?

Answer 20

no, it’s a tax on the poor and people who can’t do math

Question 21

what are the three huge ways you lose when taking out a loan?

Answer 21

1. payments: spreading the purchase of an automobile over 4-5 years hinders your ability to pay off debt or save money
2. interest: you pay more than the sticker price
3. depreciation: loss of value in your vehicle (biggest one)

Question 22

what type of mortgage should you get when buying a new house?

Answer 22

no more than a 15-year fixed rate mortgage

Question 23

what are home equity loans?

Answer 23

borrowing money against your house. they often come with higher, variable interest

Question 24

what should you do every month regarding your credit card?

Answer 24

pay off your credit card every month so you don’t go into debt

Question 25

foreclosure:

Answer 25

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

Question 26

repossession:

Answer 26

process of a lender taking something back ( a car) for failure to make payments

Question 27

bankruptcy:

Answer 27

a legal procedure for dealing with debt when an individual or business cannot repay what they owe

Question 28

garnishment:

Answer 28

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

Question 29

surrender of collateral:

Answer 29

in a bankruptcy proceeding, a debtor can give up property (collateral) to the creditor. in exchange for a clean slate

Question 30

delinquency:

Answer 30

broadly referred to a borrower not being current on their payments

Question 31

what does FICO stand for?

Answer 31

Fair Isaac Corporation

Question 32

what are the 5 components of the credit score?

Answer 32

debt history, type of debt, duration of the debt, debt levels, and new debt

Question 33

what are the 3 main credit bureaus?

Answer 33

Equifax, Experian, and TransUnion

Question 34

___ ___ is the fastest-growing white-collar crime in North America today

Answer 34

Identity Theft

Question 35

how can you protect your identity?

Answer 35

- check your credit card report annually - never print your social security number on your checks - create strong passwords - purchase identity theft protection

Question 36

what are 3 important things to do if you're a victim of ID theft?

Answer 36

1. file a police report and keep a copy of the report 2. place a fraud-victim alert on your credit bureau report 3. contact the fraud-victim division of the three main companies and furnish documentation

Question 37

credit:

Answer 37

an arrangement to receive cash, goods, or service now and pay for them in the future

Question 38

consumer credit:

Answer 38

the use of credit for personal needs

Question 39

creditors:

Answer 39

an entity that lends money

Question 40

what are some advantages of credit cards?

Answer 40

-convenient - protection - emergencies - build credit - instant gratification - special offers and bonuses

Question 41

what are some disadvantages of credit cards?

Answer 41

- interest - overspending - poor credit rating - identity theft

Question 42

closed-end credit:

Answer 42

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

Question 43

open-end credit:

Answer 43

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

Question 44

what should your debt to income ration be?

Answer 44

no more than 25%

Question 45

finance charge:

Answer 45

the total amount you pay to use credit

Question 46

minimum monthly payments:

Answer 46

smallest amount you can pay and remain a borrower in good standing

Question 47

What are the 4 C's of credit?

Answer 47

1. character 2. capacity 3. capital 4. collateral

Question 48

Character:

Answer 48

- want to know what kind of person they're lending money to will you repay the loan?

Question 49

Capacity:

Answer 49

- what is your job and how much is your salary can you repay the loan (do you need a cosigner?)

Question 50

capital:

Answer 50

- want to know if you have enough capital to pay back the loan what is your net worth? (assets-liabilities)

Question 51

Collateral:

Answer 51

- what assets do you have to secure the loan (house, car, etc.) what if you do not repay the loan?

Question 52

what is a good credit score?

Answer 52

anything above 700

Question 53

what are ways to build your credit?

Answer 53

- open a checking or savings account - build up your assets - make payments on time

Question 54

what should you do to keep a good credit score?

Answer 54

- 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

Question 55

Cosigning a loan:

Answer 55

you're agreeing to be responsible for loan payments if the other person fails to make them

Question 56

What are some ways to get out of debt?

Answer 56

- sell somethings - part time jobs or overtime - quit borrowing money - create a repayment plan

Question 57

what are the effects of bankruptcy?

Answer 57

- difficult to get credit - on your credit report for 7-10 years - remember don't give up, there is a way to fix it