Personal Finance- Chapter 4

What is the difference between a credit card and a debit card?

Debit cards are tied to the money you have in the bank. Credit cards are tied to an amount that you are "approved" for with that CC company.

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 decrease or loss in value.

Depreciation

What are the three credit bureaus? What are their purpose?

Experian, TransUnion, Equifax. Agencies that research and collect individual credit info and sells it for a fee to credit agencies so they can make decisions about granting loans.

What typically happens when you or someone you know co-signs for a loan?

If the person doesn't pay, the co-signer should be ready to pay the loan. Credit could be damaged.

Why is leasing a car a bad idea?

It is the most expensive way to finance and operate a vehicle.

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.

Loan Term

Explain the "drive free" method of buying a car.

Paying yourself or saving for a better car later while driving a used car.

What does it mean to "lease" a new car purchase?

To rent the car long-term

What is the difference between a secured loan and an unsecured loan?

Unsecured loan is based on the borrower's ability to repay the loan. Secured loan is given once collateral is extended.

The world wants you to believe that debt is a _____ or _______ offered to help consumers.

service, reward

The way to minimize the money lost on things is to buy slightly_____.

used

Each of the following is likely to check your credit score EXCEPT? A. Credit card companies B. Auto loan lenders C. Landlords D. Federal student loan office

D

What are the three ways you, as the consumer, lose when buying a brand new car?

1. Payments 2. Interest 3. Depreciation

What are five financial myths?

1.) If I loan money to a friend or relative, I am helping them. 2.) By co-signing a loan, I am helping my relative. 3.) Cash advances are needed services for lower income households. 4.) The lottery will make me rich. 5.) Car payments are a way of life.

What are the steps to staying out of debt? (3 of those 5 items)

1.) Quit borrowing more money. 2.) You must save money. 3.) Sell something. 4.) Get a part-time job or work overtime. 5.) Use the debt snowball method.

What are five financial truths?

1.) The family relationship is strained. 2.) Bank requires a co-signer because the person is unlikely to repay. 3.) Greedy rip-offs that benefit no one. 4.) Lottery is a tax on the poor. 5.) Staying away from car payments is what the typical millionaire does.

According to Dave, what is the maximum length of time you should take on a fixed-rate mortgage?

15 years

What percentage of Americans live paycheck to paycheck?

70%

What percentage of value does a new car lose in the first four years you own it?

70%

What percentage of Americans are first-generation rich?

80%

Dora has a home currently worth $150,000, for which she still owes $75,000 on her mortgage. She has $8,000 in student loan debt and $10,000 in credit card debt. She likes to keep a large emergency fund, so she has $15,000 in a savings account. Her annual salary this year will be $64,000. What is Dora's net worth? A. $72,000 B. $-14,000 C. $136,000 D. $-78,000

A

What is the true purpose of a credit score? What does it truly measure?

A credit score measures the risk of you not repaying debt. How well you handle debt. I love debt score.

What is the average number of credit cards that Americans possess?

About 3 credit cards

A yearly fee that's charged by the credit card company for the convenience of the credit card.

Annual Fee

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

Annual Percentage Rate

What is the relationship between a credit score and credit report? A. There is no relationship B. The information in your credit report is used to calculate your credit score C. Credit scores are updated annually while your credit report is updated weekly D. Credit scores are less important than your credit report

B

Which statement accurately describes a strategy for paying down debts? A. The DEBT SNOWBALL method is to pay the highest interest loans off first while making minimum payments on the others. B. The DEBT SNOWBALL method is to pay off the smallest loans first, which can be motivating because you will have fewer sources of debt. C. The HIGH RATE method is to only make payments on the loans with the highest interest rates. D. The HIGH RATE method is to pay off the biggest loans first, because they will have the highest interest payments overall.

B

Your friend confides in you that he has a low credit score. What is the single best way for him to improve his score? A. Cancel his credit cards B. Make on-time payments C. Get a car loan D. Check his credit score

B

How can your credit score impact your financial situation? A. Consumers with high scores can borrow and those with low scores cannot B. Consumers with low scores get lower interest rates on loans than those with high scores C. Your credit score can determine whether you are approved for a loan and what the interest rate on that loan will be D. It generally has no impact on your financial situation

C

I forgot to pay my credit card bill for one month. How long will that payment information show up on my credit report? A. Once I make the payment, it will disappear B. One year C. Seven years D. Ten years

C

What are the two most important factors in calculating your credit score? A. Payment history and type of account B. Amounts owed and length of credit history C. Payment history and amounts owed D. Length of credit history and new credit inquiries

C

What are three questions you should ask to determine if you can afford to buy a new home? (All 3 items)

Can I make at least a 10% down payment? Can I afford a 15-year fixed rate loan? Can I keep the house payments at or below 25% of my monthly take home pay?

What are some warning signs of identity theft?

Checks disappear from your checkbook. Credit reports show accounts you didn't open. Collection agencies call about debt you didn't incur. You are turned down for loans due to unauthorized debts on your credit report.

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

Credit Card

A detailed report of an individual's credit history.

Credit Report

A measure of an individual's credit risk; calculated from a credit report using a standardized formula.

Credit Score