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Chapter 6- Debt
Assessing, Managing and secure your credit
| Question | Answer |
|---|---|
| What is the number one rule of credit | Use credit as a tool not as a means to acquire luxuries (Only consider debt if it will make you more wealthy) |
| When should you use credit | Get a useful education, invest in the stock market, cover dire emergency, start or expand a business, buy real estate |
| When shouldn't you use credit | Buy a car, take a vacation, for bogus wants, buy stuff you can't afford, and home appliances/ furnishing |
| Rich people ask | How much (they can pay today) |
| poor people ask | how much per month (they can make payments) |
| What is the potential downside of financing | You may be paying more than it is worth |
| Rule two of credit | With the exception of your home and massive student debt your first goal should be to get out of debt as soon as possible |
| Why is investing while paying off debt not a good idea | It can put a big squeeze and lifestyle |
| Poor people by luxuries first while | rich people by luxuries last |
| What is the exception to investing while paying off debt | If you have massive student loans |
| What are the three trains of paying off mortgage | 1. Pay off as soon as possible 2. Pay off by the time you retire 3. pay of slowly as possible and even has some going into retirement |
| What's the best method to getting out of debt | Debt snowball method 1. List out all debt 2. make minimum payments on everything 3. pay extra on the smallest debt 4. move to the next smallest debt 5. repeat until all debt is paid off |
| What is the debt avalanche method | 1. List out all outstanding debt 2. pay off debt with the highest interest rate 3. move onto the next highest interest rate 4. pay minimum on everything else 5. repeat until all debt is paid off |
| Problem with debt avalanche method | People lose motivation and often cannot finish paying off |
| What is an important thing to have if you if want a credit card | a budget |
| Advantages of a credit card | 1. Easy to use 2. Keep records of everything you purchased good for tracking expenses vs your budget 3. help build your credit score 4. can often provide rewards |
| Disadvantages of credit card | 1. People spend 20% when use plastic vs cash 2. People spend more to get more points 3. Sometimes difficult to know how much you have left to spend 4. easy to go into debt by justify using credit |
| What does credit score show | Your credit score shows how good you are at paying money back |
| Components of credit score | 1. Payment history - 35 2. Amount owed - 30 3. length of credit history- 15 4. Type of credit 5. Searching for credit |
| Should you get overdraft protection | no |
| Should you co sign loan | no |
| What should you buy used | cars |
| Should you lease a car | No |
| Types of credit cards | Retail card: honoured by specific establishment Prestige card: gold or black card given to people with certain standing (AMEX black) secured: for individual with low or no credit Prepaid: no application fund given to the cashier |
| Which inquiry would show up on credit report | Hard inquiry |
Created by:
annajone
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