Week 12 - Careers & Debt

Question 1

What are the pros of borrowing money?

Answer 1

• 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

Question 2

What are the cons of borrowing money?

Answer 2

• living beyond your means
• we tend to spend more
• reliant on others - you are not “free”
• RISK
• can be tempting to do more frequently

Question 3

What is the avalanche method?

Answer 3

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

Question 4

What is the snowball method?

Answer 4

• prioritizes balances
• pay off smallest debt first
• move on to bigger ones next
• build motivation by setting debt faster

Question 5

What is chapter 7 bankruptcy?

Answer 5

• 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

Question 7

What is chapter 13 bankruptcy?

Answer 7

• 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

Question 8

How long do late payments remain on your credit report?

Answer 8

7 years

Question 9

How long do foreclosures, collections, and public record stay on your credit report?

Answer 9

7 years

Question 10

What are some examples of scams?

Answer 10

• debt settlement
• the injured grandparent
• IRS or utility
• posing as your bank
• refund issued in error
• apartment cloning
• mortgage closing. wire fraud

Question 11

In bankruptcy, what is a “discharge”?

Answer 11

A discharge is a release from personal liability on debt.

Question 12

(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.

Answer 12

False

Question 13

(T/F) Since student loans and taxes are not tied to collateral, these debts can be erased through bankruptcy.

Answer 13

False

Question 14

Which type of debt should you generally pay off first?
Home loan
Student loans
Auto loan
Credit card debt

Answer 14

Credit card debt

Question 15

What are the 4 P’s?

Answer 15

1. Pay (in a specific way)
2. Pretend
3. Problem/Prize
4. Pressure

Question 16

What are some examples of beneficial debts?

Answer 16

• home mortgages (shelter)
• car loans (get to work)
• student loans (get education)

Question 17

What should you do if you’re struggling with debt?

Answer 17

1. get $1,000 in your bank account
2. set aside 20% of after-tax income every month and use to pay off debts

Question 18

What SHOULD you not do when paying off your debt?

Answer 18

• DON’T take money out of retirement accounts
• DON’T risk your home

Question 19

What should you do in the case of identity theft?

Answer 19

1. credit freeze
2. fraud alert
3. regularly check credit report

Question 20

What is an automatic stay?

Answer 20

When bankruptcy petition is filed, all collection activity halts

Question 21

What is secured debt?

Answer 21

Loan backed by collateral (ex: mortgages, auto loans, lines of credit)

Question 22

What is unsecured debt?

Answer 22

Personal obligation to repay (ex: cc’s)

Question 23

What are exemptions?

Answer 23

Allows for debtors to keep some assets outside the reach of unsecured creditors

Question 24

What is the goal of bankruptcy?

Answer 24

To provide a fresh start

Question 25

What happens in chapter 7 bankruptcy?

Answer 25

(Most of) your assets, if any, are sold and your debts are discharged (i.e. gone)

Question 26

What happens in chapter 13 bankruptcy?

Answer 26

You keep your assets but must agree to and abide by a repayment plan to pay your debts