Week 12 - Careers & Debt Flashcards
What are the pros of borrowing money?
- allows for major purchases where saving cash would be impractical (home, education)
- “leverage” may allow better returns (but not without risk)
- can reduce short-term financial stress
What are the cons of borrowing money?
- living beyond your means
- we tend to spend more
- reliant on others - you are not “free”
- RISK
- can be tempting to do more frequently
What is the avalanche method?
A way to get rid of debt that:
- prioritizes interest rates
- pay off debt with the highest interest rate first
- move on to next highest interest rate debt after first is paid off
- pay less interest over time
What is the snowball method?
- prioritizes balances
- pay off smallest debt first
- move on to bigger ones next
- build motivation by setting debt faster
What is chapter 7 bankruptcy?
- filed by individuals and businesses
- income must be below a certain level
- gets rid of all unsecured debt
- nonexempt assets sold
- takes 4-6 months
- stays on credit report for 10 years
- can’t stop but can delay foreclosure
What is chapter 13 bankruptcy?
- filed by individuals
- no income requirement, debt must be below certain amount
- most unsecured debt paid back over time
- can stop foreclosure
- takes 3-5 years
- stays on credit report for 7 years
How long do late payments remain on your credit report?
7 years
How long do foreclosures, collections, and public record stay on your credit report?
7 years
What are some examples of scams?
- debt settlement
- the injured grandparent
- IRS or utility
- posing as your bank
- refund issued in error
- apartment cloning
- mortgage closing. wire fraud
In bankruptcy, what is a “discharge”?
A discharge is a release from personal liability on debt.
(T/F) One highly recommended method for paying off student loans is to take an early withdrawal from your traditional IRA or 401(k) plan.
False
(T/F) Since student loans and taxes are not tied to collateral, these debts can be erased through bankruptcy.
False
Which type of debt should you generally pay off first?
Home loan
Student loans
Auto loan
Credit card debt
Credit card debt
What are the 4 P’s?
- Pay (in a specific way)
- Pretend
- Problem/Prize
- Pressure
What are some examples of beneficial debts?
- home mortgages (shelter)
- car loans (get to work)
- student loans (get education)
What should you do if you’re struggling with debt?
- get $1,000 in your bank account
- set aside 20% of after-tax income every month and use to pay off debts
What SHOULD you not do when paying off your debt?
- DON’T take money out of retirement accounts
- DON’T risk your home
What should you do in the case of identity theft?
- credit freeze
- fraud alert
- regularly check credit report
What is an automatic stay?
When bankruptcy petition is filed, all collection activity halts
What is secured debt?
Loan backed by collateral (ex: mortgages, auto loans, lines of credit)
What is unsecured debt?
Personal obligation to repay (ex: cc’s)
What are exemptions?
Allows for debtors to keep some assets outside the reach of unsecured creditors
What is the goal of bankruptcy?
To provide a fresh start
