Personal finance Ch. 7

what kind of loan should you seek?

inexpensive loans medium-priced loans expensive loans

Truth in lending law

is the federal law that requires creditors to disclose the annual percentage rate (APR) and the finance charge as a dollar amount

Declaring bankruptcy is a

last resort because it severely damages your credit rating

women are more or less accountable for bankruptcies

less

term versus trade offs

longer loans with lower payments result in more total interest

previous balance method

method of computing finance charges that gives no credit for payments made during the billing period ex. APR 18%, monthly rate 1.5% previous balance $400 dollars, payments $300 =fiance charge =1.5% x $400 =$6.00 even thought paired 75% of balance but your still paying the full original balance

what should you do if you can't make a payment

notify creditors

inexpensive loans

parents or family members loans that use you assets (Cds or value of whole life insurance) as collateral

if you cannot pay your bills what should you do

postpone further credit purchases, talk with your creditors, or seek help from a non-profit credit counseling service

Finance charge

total dollar amount you pay to use credit. it includes interest costs, service charges, credit-related insurance premiums, or appraisal fees

serious consequences of debt

-robbing peter or pay paul can affect family healthcare -may result in neglecting the educational needs of children -may result in heavy drinking -neglect of children -maritial difficulties -drug abuse -bankruptcy

Chapter 7 bankruptcy

-submit a petition to the court that lists assets and liabilities, and pay a filing fee -known as a straight bankruptcy -many, but not all, debts are forgiven -most assets are sold to pay creditors -can keep some assets -fresh start -most filings used to be this type **Be honest

after chapter 7 bankruptcy you may no longer owe

-retail store charges -bank credit card charges -unsecured loans -unpaid hospital or physician bills

comsumer credit counseling service

-Non profit support from banks, merchants, ext -provides education about credit and budgeting -provides help with spending plan -provides debt counseling services for those with serious financial problems -***Can develop a debt repayment plan and negotiate reduced interest rates

Lender risk verses interest rate.. ways to reduce interest rates

-accept a variable interest rate -provide COLLATERAL to secure the loan -make a large cash down payment up front -have a shorter loan term

Chapter 13 bankrupty

-better bankruptcy -voluntary plan proposed to the bankruptcy court for those to want to pay a portion of their debt over a period up to five years -known as a WAGE-EARNERS plan -must have a regular income -payments are made to a trustee -trustee distributes money to creditors (ppl you owe $ to) -court may allow you to keep property and pay less than full amount of debts -costs to the debtor include court costs, attorneys fees and trustees fees and costs -reduced debt -**doesnt ruin credit rating / must have income

cost of credit and inflation

-borrowers and lender are concerned about the goods and services that dollars 'can' buy (purchasing power of dollars) rather than the actual credit used -inflation erodes the purchasing power of money -each % point increase in inflation means a decrease of approximately 1% in the quantity of good and services you can purchase with a dollar

after chapter 7 bankruptcy, you may still owe

-certain taxes and fines -child support and alimony -educational loans -debts from willful or malicious acts

Simple interest

-computed on principal only and without compounding -the dollar cost of borrowing - P x R x T

Cost of open-end credit

-credit cards, department store charge cards, and check overdraft accounts

reasons for debt

-emotional problems -use of money to punish or get even -expectation of instant comfort amoung young couples who overuse the installment plan -keeping up with the jonesses -overindulgence of children -misunderstanding or lack of communication amoung family members -amount of finance charges make it difficult to repay

credit insurance

-ensures loan is paid off in the event of death, disability, or loss of property -preniums are quit high

what does the bankruptcy abuse prevention and consumer protection act of 2005 include

-executive office for U.S. trustees must develop a financial management training curriculum to educate individual debtors on how to better manage their finances -debtors must complete an approved instructional course in personal financial management -cleark of each bankruptcy district must maintain a list of credit counseling agencies and instructional courses on personal financial management **teach you to be smart with your money

expensive loans

-finance and check cashing companies -retailers such as car or appliance dealers -bank credit cards and cash advances

******* avoid the minimum payment trap

-if you make only the minimum payment each period, you will pay more in interest and it will take you longer to pay off your balance

add-on interest

-interest is calculated on the FUll AMOUNT of the original principle. it is then added to the principle, and the total of both is divided by the number of payments to be made to arrive at the payment amount ex. 1200 dollars borrowed with 10% interest a year add it to it up front principle + 1/12 of 1200 + interest (10%)

simple interest on declining balance

-interest is paid only on the amount of original principle not yet paid -the more frequent your payments, the lower the interest you will pay **as balance increases so does amount owed

cost of credit and taxes

-interest paid on consumer credit is not tax deductible

credit card accountability, responsibility, and disclosure act of 2009 (the credit card act)

-limits increase in the APR in the first year -restricts ins suers from charging higher interest rates on existing balances -teaser rates must be for at least 6 months -issuers must mail statement at least 21 days before payment is due -disclosure statement must be clear and timely -card issuers must post card agreements on the internet **-requires statements to report the due dates, potential late fees, and warn about the cost of making only the minimum payments -set a consistent due date for card payments each month -restricts the penalties for going over the credit limit -prohibits card issuers from issuing cards to consumers under 21 with out a co signer or independent means to repay debt.

adjusted balance method

-method of computing finance charges where they are calculated after payments made in the billing period have been subtracted (compute interest after) ex. 3000 owed, not charging full 3,000

warning signs of debt problems

-paying only the minimum balance each month -increasing the total balance due each month -missing or alternating payments or paying late -intentionally using overdraft protection or taking frequent cash advances -using savings to pay routine bills such as food -getting second or third payment notices -not talking to your partner about money or talking only about money -depending on overtime to meet routine expenses\ -using up your savings -borrowing money to pay old debts -not knowing how much you owe -going over your credit limit on credit cards -having little or no savings for the unexpected -being denied credit due to a credit report -getting a credit card revoked by the issuer -putting off medical or dental visits

fair debt collection practices act

-regulates debt collection agencies -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 or 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 verification sent, you may pay the debt or give notice that you will not pay

Average daily balance method

-the fairest method of computing finance charges -creditors add your balances for each day in the billing period -then they divide this total by the number of days in the billing period -then they multiply this average by the monthly interest rate -new purchases may be excluded from the average daily balance calculation, but generally are included if you carry over a balance ***fairest way***

the annual percentage rate (APR) is

-the percentage cost of credit on a yearly basis -true rate of interest so you can compare rates with other sources of credit. -its your key to comparing costs

early repayment

-the rule of 78s favor lender -formula requires that you pay more interest at the beginning of loan, when you have the use of more of the money, and pay less and less interest as the debt is reduced **lenders are in favor

alternative counseling services

-universities, local county extension agents, credit unions, military bases, and state and federal housing authorities provide nonprofit counseling services -you can check with your bank or consumer protection office to see if it has a listing of reputable, low-cost financial counseling services -avoid those service providers with large fees -www.---.com is the website of the nonprofit american consumer credit counseling -bankruptcy is a last resort

how many people a year declare bankrupt

2.0 million people

Bankruptcy

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

how long does it take to get credit score back up after bankruptcy

about 10 years

medium-priced loans

commercial banks, savings and loan associations and credit unions

what are three types of credit that credit insurance will pay off

credit life, credit accident and health, and credit property