Personal finance: Chapter 7

Consumer credit counseling service (CCCS)

A local, nonprofit organization that provides debt counseling services for families and individuals with serious financial problems.

Rule 78s

A mathematical formula to determine how much interest has been paid at any point in a loan term. Also called sum of digits. It favors lenders and dictates that you pay more interest at the beginning of a loan, when you have the use of more money.

Fair debt collection practices Act (FDCPA)

A federal law that regulates debt collection activities. -If a debt collector calls you, within 5 days they must send you a written notice of amount owed, the creditors name and your right to dispute the debt -You can dispute the debt and pay it -You may request verification of the debt within 30 days --If not sent, you can insist that communication about the debt cease --If sent, you may pay the debt or give notice that you will pay

Chapter 13 bankruptcy (WAGE EARNER)

A voluntary plan that a debtor with regular income develops and proposes to a bankruptcy court. The debtor makes payments for over a period of 3- 5 yrs. Here the person normally keeps all the property. Sometimes the bank says that they can keep all the property even though they are paying the creditors less. If the debtor successfully completes the plan some debts that cannot be discharged in chapter 7 (fraud) can be discharged here Must have a regular income!, payments are made to a treustee and they pay the creditors. You keep your property and pay less than the full amount. Overall cost include court costs, attorney fees and trustee fees and costs.

Simple interest

Interest computed on principal only and without compounding. It is the dollar cost of borrowing money . (Interest= Principal x rate x Time)

Chapter 7 Bankruptcy (STRAIGHT)

One type of personal (or straight) bankruptcy in which many debts are forgiven. The people are called debtor. Does not affect alimony, child support, certain taxes, fines, or debts that you failed to properly disclose to the bankruptcy court. Here most of the assets are sold of to pay the creditors but some of the assets are protected like social security payments. You may still owe education loans, child support, some taxes, debts from malicious acts. Will no longer owe: unsecured loans, bank credit card charges, retail charges, hospital bills Have a fresh start. Submit petition to court.

Creditors use the two-cycle average daily balance cycle. THIS WAS BANNED by credit card act!

These include and exclude new purchases. So they use the average daily balance for two consecutive billing cycles.

Truth in lending law!!!!!!!

a federal law that requires creditors to disclose the annual percentage rate (APR) and the finance charge as a dollar amount. This way consumer could know exactly what the credit charges were and could compare credit costs and shop for credit. Tells you the method that will be used by the creditor

Bankruptcy

a legal process in which some or all of the assets of a debtor are distributed among the creditors because the debtor is unable to pay his or her debts

Previous balance method

a method of computing finance charges that gives no credit for payments made during the billing period. So when creditors give you no credit for payments made during the billing period.

Average daily balance method

a method of computing finance charges that uses a weighted average of the account balance throughout the current billing period.

Add-on interest method!!!!

a method of computing interest in which interest is calculated on the full amount of the original principal. Payments are determined by dividing principal plus interest by the number of payments to be made. Results in an effective rate of interest that is higher than the stated rate. If paid as a lump the APR is the same as simple interst.

Declined balance method!!!

a method of computing interest when more than one payment is made on a simple interest loan. So the more frequent the payments the lower interest you will pay. Most credit unions use this. The APR with simple loans in this method is the rate

Credit insurance

any type of insurance that ensures repayment of a loan in the EVENT the borrower is unable to repay it.

Subsidized

federal government pays interest while student is in school (need-based)

Unsubsidized

interest accrues to loan balance

Bank interest rate method

is the most expensive. Is common for single loan payments.

Adjusted balance method!!!!

the assessment of finance charges after payments made during the billing period have been subtracted.

annual percentage rate (apr)!!!!

the percentage cost (or relative cost) of credit on a yearly basis. The APR yields a true rate of interest for comparison with other sources of credit. The true interest that you are paying right now

finance charge!!!!!

the total dollar amount paid to use credit. If borrowing $100 and have a $10 interest and $1 service charge. The finance charge is $11.