Personal Finance: Credit and Debt

Annual Mileage Limit

# lessor sets for "miles per year" for term of lease,. IF @ end of lease, exceeded, a fee for each mile over. Generally $0.20 - 0.25/mile.

Loan Amount

Amount of money borrowed for purchase of car.

Dealer Invoice

Amount the car dealership (location) paid the manufacturer for the car.

Debt

An amount of money borrowed from party to another. Many individuals/companies use to make LARGE PURCHASES they could NOT afford over normal circumstances.

Advantages to Credit

Easier to take out loan, can rent (apartment, condo), can borrow money (car, laptop).

Credit Limit

Maximum you can borrow at any one time (1 billing cycle).

Amortization Table

List the total money borrowed, monthly payment amount and actual breakdown of each monthly payment IF were received exactly on each due date. Shows how much interest will be paid over the course of the loan. Car payment is a suggestion (care if spend less than minimum payment)(bankrate.com).

Fees

Each one of the credit card fees, technically speaking, can also be considered part of the "cost of borrowing" (aka interest) and can be turned into an interest rate using following formula: amount of fee/amount of transaction (to annualize interest rate = x12).

Revolving Debt

When a transaction is made on a credit card, the whole balance doesn't need to be paid off at the end of the month (holder has high interest rates - usually around 20%).

Student Loan Consolidation

When loans move into pacheck period may be helpful to consolidate loans (groups them into 1 loan with only 1 monthly payment and lengthens paycheck period potentially for 30 years).

Default

When people STOP paying a debt. Creditors have right to repossess item that was bought using lent money.

Lessee

YOU - the 1 using (leasing) the vehicle.

Mortgage

A loan bought land, buildings, or houses.

Lease Payment

Monthly payment.

MSRP (Sticker/List Price)

(Manufacturer's Suggested Retail Price) Price for the vehicle set by the manufacturer (Ford, Tesla).

Incentives

(To use card) Money back, points, airline miles, or other benefits users may receive by simply using credit card.

Credit Cards

1 of the most common forms of borrowing money (in addition to car loans/leases). A revolving credit instrument, has no set term, and is non-securitized (not based/tied/linked to an asset - can't be repossessed). A great ways to establish credit when used wisely and responsibly.

Credit Types Further Characteristics (Collateral = An Asset):

1.) IF YES = Securitized Credit 2.) IF NO = Non-securitized Credit

Advantages to Credit Cards

1.) Make purchase without large amount of cash or a checkbook. 2.) When pay balance in full at the end of billing cycle, do not incur any interest charged. 3.) Monthly statement containing list of purchases for month. Can help keep track of spending (CHECK REGULARLY AGAINST IDENTITY THEFT OR INCORRECT CHARGES). Applying is very easy (online, over phone, apps in mal, apps @ retailers - on spot signing up = save x%). Credit providers (usually a bank) will obtain personal info, check credit history, determine ability to pay, and calculate how much money they will potentially lend. Popular "brands" (Master Card, Visa, Discover, American express).

Rules to Leasing

1.) Never make down payment. 2.) ALWAYS ask for better deal. 3.) Good deal - monthly payment - 30-40% less than monthly payments of 60 month loan. 4.) IF drive more than 15,000 mile/year - leasing maybe not for you.

3 Major Types of Credit (Based on Term)

1.) Non-installment Credit 2.) Installment Credit 3.) Revolving Open-end Credit

Ingredients To Maintain Good Credit (FICO) Score

1.) Pay ALL bills on time. 2.) Avoid opening new credit accounts. 3.) Keep debt:credit ratio below 50% (low). 4.) DON'T cancel oldest credit cards. 5.) Monitor credit reports.

3 OTHER TYPES OF STUDENT LOANS

1.) Plus Loans 2.) Grad Plus Loans 3.) Private Loans

2 MAIN TYPES OF STUDENT LOANS

1.) Subsidized 2.) Unsubsidized

Cost of Attendance (COA)

1.) Tuition (much higher at private = 52k, public = 25 -- $200/day at school) 2.) Books 3.) Room and Board 4.) Personal expenses/miscellaneous/travel (look closely/negotiate) 5.) Fees (look closely/negotiate) 50 %(necessities)/30 %(incidentals)/20 %(savings)

4 TIPS FOR CREDIT CARD USAGE

1.) Use ONLY if can pay the bill in full. 2.) Impose TIGHT credit limit on self. 3.) Pay credit card BILLS FIRST. 4.) Use SAVINGS, if necessary, to pay off credit cards. READ credit card info because may charge even more fees for more features!!!

Unsubsidized

Accumulates interest as soon as money borrowed. Payment not necessary until loans are in payback period, however interest accumulated added to loan bill (max = $2,000/year).

Master Promissory Note (MPN)

Agreeing to repay student loan.

Non-securitized Credit

Agreement for credit NOT based upon asset (usually higher interest)(student loans [go away with death], credit cards).

Securitized Credit

Agreement for credit based upon asset. IF met - borrower keeps asset. IF not met - lender ma repossess asset (usually lower interest)(car, mortgage, boat or RV or motorcycle, business).

Revolving Open-end Credit

Allows consumers to borrow up to some preset maximum money amount. Credit limit is established by lender based upon characteristics of borrower. Consumers use to make 1 purchase or many - can repay entire amount or portion. Typically no set term (credit cards).

Installment Credit

Also used for specific purchases, but allows borrower more time to pay back money. Typically require borrower to make monthly payments - with portion of each going toward principal and some toward interest of loan (car loan, student loan, mortgage, boat or RV or motorcycle).

Lease BUYOUT

Another individual begins car lease. YOU "take over" lease. Often paid. Be wary of mile limit and miles left on lease.

Car Leases

Approximately 20% of all view cars, trucks, SUVs, and vans leased. Approximately 75% of all luxury cars leased.

Lender

Bank lending money to purchase.

Chapter 7 Bankruptcy

Basic liquidation for individuals (and businesses).. Sale of any/most assets and money from sale used to pay off debts.

Cash Advances

Can use credit card to get money instead of making purchase. Usually involves a fee. Like a debit card when used like this.

Interest Rate

Cost of borrowing money to buy the vehicle, expressed as percentage.

Non-installment Credit

Credit (money) extended for a short term (such as 18 months or less). Consumer borrows the money at time of purchase, and pays off entire amount in short period. Most will NOT gain interest charges IF paid off within allotted period (Best Buy, Lowe's, HD, Furniture).

Chapter 13 Bankruptcy

DEBT REPAYMENT plan for individuals with regular source of income; enables individuals with regular income to develop plan to repay all/part of their debts.

Subsidized

Does NOT accumulate interest until loan moves to pay back status (FR: $3,500, SO: $4,500, JR/SR: $5,500).

Lessor

Finance company (where you will send lease payment money).

Unemployment "Insurance"

For a fee, this may pay credit card bill (minimum amount due only) if/when should become unemployed.

Payback

For many loans, either get "coupon book" (similar to auto loan) or monthly statement. Many can be paid online, or via DDA (Direct Debit Authorization)(with discount = 2.5% because automatic payment [direct/payment deposit]). Interest paid on student loans = generally tax deductible.

Grad Plus Loans

Grad student borrow money for grad school.

Things Might Need to Borrow Money For:

House, car loans, student loans, boat or RV or motorcycle, start a business, renovations.

Return Item Fee

IF pay bill by check, and check returned for insufficient funds.

Late Payment Fee

IF payment received after due date. 1st time = call to waive fee.

Over the Limit Fee

IF you go over the credit limit (usually because interest accumulates).

Balance Transfer Fee

IF/WHEN you transfer a balance from another credit card. May also be a flat fee, or a percent of transaction.

Residual (Guaranteed Future Value)

If @ end of lease term, lessee chooses to purchase vehicle, this is the predetermined purchase price.

Borrower

Individual borrowing money to purchase.

Credit (FICO) Score

Info gathered from creditors everywhere. Generally range from 350-850. REALLY GOOD = ⩾ 740. WORTHINESS ?D = < 700. AVERAGE U.S. = 680. If "really bad" credit requirements can be denied (can improve score but is challenge b/c it follows you for 7-10 years - so be a RESPONSIBLE BORROWER). Borderline if bad or good = higher interest rate. On this is - old addresses, age, SS #, any legal judgements against you (3 #s). Lender looks at 4c's = character, capacity, capital, credit. View this 2 times per year on annualcreditreport. Payment history (35%), amounts owed relative to credit limit (credit:debt ratio - keep below 50%)(30%), length of credit history (15%), frequency of new credit (10%), and types of credit (10%). IT IS RELATIVE (a rank - a comparison to others so changes due to others going up or down - maybe b/c of market conditions.

Down Payment

Initial payment (optional), made at the time of the loan agreement, which can be used to lower the principal balance of the loan.

Lease (Money) Factor

Interest rate of lease; 1/24 of actual interest rate.

Annual Fee

Just for having the card.

Car Lease

Legal, written, binding agreement between lessor and lessee for vehicle. Leasing = NOT renting.

Term

Length of lease agreement; usually 12 month increments.

Credit

Money lender makes available to borrower with understanding that borrower will repay in future (your ABILITY TO BORROW someone else's money).

Student Loans

Most college students have them. Money borrowed for college expenses. As long as enrolled in college "full time" (usually 12+ credits), do not have to start to repay money until 6 MONTHS AFTER leave college.

Cancellation or Discharge Student Loan

Must repay student loans even if do not complete education, cannot find job, or unhappy with education... however, certain circumstances might lead to loan(s) being forgiven, canceled, or discharged.

Finance Term

Number of months for which the money used to purchase the car must be paid back; usually in 12 month increments.

Collateral

Objects that can be handed over to the bank in the event you don't pay the loan. When people borrow more than can afford take back purchase.

Plus Loans

Parents borrow money for child at college.

Grace Period

Period when NOT charged interest for borrowing against credit limit. Typically 20-30 days from date bill is generated.

Maintenance

Regular car maintenance items, such as: oil change, tire rotation, "tune up," or wiper blades.

Car Dealership

Source of the vehicle.

Dealing with Debt

Steps to deal with high debt: 1.) Try to NEGOTIATE new favorable repayment term with credit card company. 2.) CREDIT COUNSELING AGENCY: These companies (some profit, some non-profit) offer education to consumers about how to avoid incurring debts that can't be repaid by establishing effective debt management plan and budget. Close accounts, lower credit limits, contract creditors, "reaging" or "curing." Entering program does NOT directly affect FICO but appears on credit history report. 3.) BANKRUPTCY: A process where courts provide protection (from creditors) for person unable to pay off debts. LAST RESORT if unable to pay timely and regularly. Courts help propose plan to repay at least portion of debts. Most plans last 3-5 years. Reported to credit bureaus and on credit report for 7 years. Obtaining credit difficult and costly. Most common for businesses: Chapter 7 and 11. Most common for individuals: Chapter 7 and 13.

Foreclosure

Take back property (lender allowed to do when someone doesn't pay - is bankrupt).

Deferment or Forbearance

Temporarily allows to a.) postpone making student loan payment, or b.) reduce monthly amount paid. MUST be required by borrower who meets specific requirement NOT a forgiveness/cancellation.

Interest

The cost of borrowing money.

Acquisition Fee

The fee charged by bank to set up lease (various lease paperwork).

Student Loan Statistics

Total outstanding student loan debt as of September 2018 = 1$.56 trillion. $521 billion more student loan debt than credit card debt. 44.7 billion have student loan debt of some kind.

Disadvantages to Credit

Tough to keep up with bills have have high balance, possibility to overspend, prior results in low credit score (makes it hard to get loans, need a cosigner, high interest rates).

Credit Agencies

Track borrower's history. AMOUNT of money borrowed, TYPE of loan, IF paid back on time, 1 missed payment can impact credit worthiness (> 30 days not very big deal). They gather info from creditors everywhere. Info organized by 3 major credit agencies (experian, equifax, and transunion).

Chapter 11 Bankruptcy

Typically allows companies to continue to function while they follow STRICT DEBT REPAYMENT plans.

Disbursement

Typically money disbursed twice (fall/spring semester). As freshmen, sometimes not disbursed until end of September (ensure student remains enrolled). Money goes to college NOT YOU. Student loans disbursed similar fashion, each year, until student graduates, and totaled into 2 categories: subsidized and unsubsidized when lender is preparing for loan paycheck.

Things FAFSA Looks For

U.S. citizen with social security #, high school diploma, enrolled @ college, not owing money on existing student loan, (males) register with selective service, not have a conviction for possible sale of illegal drugs (while receiving federal aid).

Credit Card

Using is actually spending money. Issued by bank or other creditor (lender). Has a credit limit. When used, must pay interest on what is borrowed. Interest rate as high as 20%.

Private Loans

Way to borrow money for college with expensive price tag.

Bankruptcy

When a person is unable to pay back any money borrowed (a declaration of debt). Will be on credit record for 10 years (LAST RESORT). Usually linked to much credit card debt.