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Personal Finance Ch4

Debt

QuestionAnswer
The following are factors in determining a FICO score Getting a personal loan from a bank, using credit cards, taking out a mortgage on a house
What factors affect a credit score? type of debt, new debt, duration of debt
What is a paycheck garnishment? a court-ordered attachment that allows a lender to take monies owed directly from a borrower's paycheck
If you do have a FICO score, what factors will determine whether you qualify for a mortgage? history of rental and utility payments and the amount of your down payment and employment history
A credit score is intended to measure the risk of you not repaying debt
Individual account information is removed from your credit report seven years after the last activity on the account, except for Chapter 7 bankruptcy, which stays on your credit report for 10 years
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 debt snowball
A detailed report of an individual's credit history credit report
Time frame that a loan agreement is in force, and before or at the end of which the loan should be repaid or renegotiated loan term
Cost of borrowing money on an annual basis; takes into account the interest rate and other related fees on a loan annual percentage rate (APR)
A decrease or loss in value depreciation
A yearly fee that's charged by the credit card company for the convenience of the credit card annual fee
An interest rate charged to a customer during the early stages of a loan; the rate often goes up after a specified period of time introductory rate
A long-term rental agreement on a car; a form of secured long-term debt lease
When a person owes more on an item (like a car or a house) than it is worth, the person is said to be __________ on a loan upside down
A card issued by a bank that allows users to finance a purchase credit card
Describe the difference between a secured and an unsecured loan. An unsecured loan is given to borrowers based on their financial resources or ability to repay the loan; a secured loan is usually needed when borrowing large amounts of money. The is "secured" with collateral
Collateral an asset that can be taken if the loan is not paid
Why is an adjustable rate mortgage (ARM) a bad idea? An ARM is a mortgage with an interest rate that changes based on market conditions. They are not recommended because there is increased risk of losing your home if your rate adjusts higher or you lose your job and your payment becomes too much
Why is financing a car a bad idea? Spreading the purchase of a car over 4 or 5 years hinders your ability to pay off debt or save money during that time. You might end up owing more than the car is worth.
What are the negative consequences of taking on debt? Constantly owing $ to others prevents you from paying yourself through saving and investing. This makes it difficult or impossible to build wealth over time.
What are some things you can do to protect your personal information? Use a shredder and destroy credit card offers and other documents with personal info on it, check your credit report, make strong passwords, never use your SSN unless you absolutely have to.
Explain how the debt snowball works. Put all of your debt in order from the smallest to the largest; pay minimum payments on all of your debts except for the smallest one; attack the smallest one with intensity until it is paid off; then go on to the next one
What should you do if you think you are a victim of identity theft? Get a copy of your credit report and look for suspicious activity; place a fraud victim alert on your credit bureau report; cancel all cards (if you lose your wallet) and get new cards sent; put a "stop payment" on stolen/lost cards; file a police report
Created by: gcowing