Personal Financial Literacy : 5. CREDIT, DEBT, AND CONSUMER SKILLS
Mario has a remaining balance of $1,300 on his credit card. His credit card has an APR of 20 percent. How much will he pay in interest in one month?
$21.67
Manuel has a remaining balance of $563 on his credit card. His credit card company has an APR of 15 percent. How much will Manuel pay in interest for one month?
$7.04
Nicholas makes $2,000 per month. He spends $300 on credit card payments and $350 on an auto loan. What is his debt-to-income ratio?
32.5 percent
Which of the following loans will have a higher total cost? A loan for $5,000 at 3.5 percent over a loan period of four years. A loan for $5,000 at 3.5 percent over a loan period of six years.
A loan for $5,000 at 3.5 percent over a loan period of six years.
Annual Percentage Rate; the yearly interest rate a credit card company charges to borrow money
APR
Ramon took out a car loan with an interest rate of 10 percent and paid $100 in loan application fees. What term describes the amount of interest Ramon will pay?
APR
What is the most important factor to consider if an individual expects to carry a balance on his credit card from time to time?
APR
each of the factors you should consider when shopping for a mortgage
APR interest rate loan period fixed or variable rate
Adjustable Rate Mortgage; a mortgage that has a fixed rate for a certain amount of time and then has a variable rate that changes periodically
ARM
a loan with an initial fixed interest rate that then becomes variable
ARM
each of the Biblical principals regarding debt.
Debt should be avoided whenever possible. Avoid long-term debt. Don't promise to pay without having a sure way to do so. The borrower has an absolute commitment to repay.
Identify the strategies you can use to avoid debt.
Earn extra income to pay for special purchases. Save. Research the best prices. Maintain a budget. Be disciplined and only buy what you can afford. Plan how you will spend your money.
Free Application for Federal Student Aid; an application to obtain financial aid such as grants or student loans
FAFSA
a government-backed loan, which makes it easier for some people to qualify
FHA loan
If an individual pays the minimum payment each month, she will quickly pay off her credit card.
False
If the principal on one loan is $1,000 more than another loan, the total cost of the loan is $1,000 more.
False
Jillian has a low credit score, and she will not be able to pay the minimum balance on her credit card bill next month. What should Jillian do?
Find credit counseling services.
How does a lender use a credit report?
He uses it to keep track of how much money is spent.
three strategies for avoiding credit problems.
Look for alternatives before using a credit card Always pay off debts and loans right away Look for low interest rates.
Collin has a credit card bill of $3,000. He makes only the minimum payment and is always close to the limit on his credit card. Is Collin using credit responsibly?
No
Which of the following is not a Biblical principal as far as debt is concerned?
Only accumulate long-term debt.
Private Mortgage Insurance; insurance you must pay on most loans when you make a down payment of less than 20 percent
PMI
all of the strategies for avoiding credit problems.
Set goals. Use the debt-to-income ratio to determine if you are ready for a big purchase. Run a credit report annually. Create a budget and stick to it. Get rid of unnecessary expenses. Pay bills on time.
Credit is the agreement to repay a lender for buying something.
True
FICO is a credit score.
True
the statement that federal law requires a credit card company to provide in order to explain their terms
Truth in Lending Disclosure
a government-backed loan for veterans
VA loan
A credit report is a _____.
a report prepared by a credit bureau that shows details of an individual's credit history
The difference between a secured loan and an unsecured loan is _____.
a secured loan requires collateral and an unsecured loan does not
An account with a financial institution used to pay taxes and insurance is called _____.
an escrow account
What is the most important factor to consider when selecting a credit card if you pay the balance every month on time?
annual fee
all the fees a credit card may have.
annual fee balance transfer fee cash advance fee late fee overdraft fee over-the-limit fee
a short-term mortgage in which small payments are made until the completion of the term, at which time the entire balance is due
balloon mortgage
a short-term loan with low interest rates; when the term is up, the entire balance of the loan is due
balloon mortgages
a legal statement that an individual is unable to pay lenders, involving a court process that protects people while they repay debts or the court removes the debts
bankruptcy
all the possible consequences of excessive debt.
bankruptcy subprime loans foreclosure repossession
the ability to make payments based on amount of income and other bills
capacity
What are the 4 C's of lending?
capacity capital character collateral
your net worth; the value of the items you own and the cash you have available
capital
cash borrowed from a credit card account, for which cash advance the credit card company charges fees and higher interest rates
cash advance
A cash advance is _____.
cash borrowed from a credit card account
how responsible you have been in the past with credit; information from your credit report
character
a person who signs a loan with another individual
co-signer
a piece of property that a person promises to give to the lender if a loan is not paid
collateral
an agreement in which the borrower buys something of value and agrees to repay the lender
credit
type of credit.
credit card installment account loan service credit
four factors that a lender investigates when considering whether you are creditworthy
credit cards service credits loans installment credit
maximum amount of money that an individual is authorized to use
credit limit
A report prepared by a credit bureau which shows details of an individual's credit history is called a _____.
credit report
a report prepared by a credit bureau that shows details of an individual's credit history; used by a lender to determine whether an individual is creditworthy
credit report
a number that lenders look at to see if an individual is creditworthy; also called a FICO score
credit score
having an acceptable credit rating; considered responsible to borrow money
creditworthy
an amount of money that is owed to a bank, a credit card company, a store, or another individual
debt
Good stewards avoid debt because _____.
debt can negatively affect contributing to God's work and giving generously in the future
the amount of debt compared to income; a ratio used to determine if an individual has excessive debt
debt-to-income ratio
an account with a financial institution used to pay taxes and insurance
escrow
A grace period is a length of time before the credit card company starts charging late fees.
false
A traditional loan has a variable interest rate.
false
Garnishment is when finance charges are added to your credit card account when the bill is unpaid.
false
interest and fees charged for making purchases using a credit card
finance charges
money used to support students with the costs of higher education
financial aid
an interest rate that remains the same throughout the entire loan repayment period
fixed rate
a process in which a lender tries to regain property because the borrower has not made payments
foreclosure
a process when a lender tries to obtain money from an individual's employer to pay an unpaid debt
garnishment
FHA and VA loans
government-backed mortgages
a period of time before the credit card company starts charging interest
grace period
money awarded to a variety of students that does not need to be repaid
grants
An installment loan _____.
has equal payments each month
the value invested in a home; the amount owed for the home subtracted from the total value of the home
home equity
a request for a person's credit report
inquiry
a loan that is repaid in equal monthly payments for a specific period of time
installment loan
equal payments usually made over several years
installments
Cole has a credit card bill of $3,100. His credit limit is $3,000. Is Cole using credit responsibly or irresponsibly?
irresponsibly
the bank or company that lends money on the condition that it will be paid back
lender
a claim to take and hold property until a debt is paid
lien
the time it will take to repay the loan
loan repayment period
the least amount of money that must be paid at the end of a month
minimum payment
a loan used to buy a home
mortgage
How often should you get a credit report?
once per year
If an individual has a balance on her credit card, but would like to pay less money in the long run, she should _____.
pay as much as possible each month
Anthony received his first credit card bill. Since he wants to be a good steward and use credit responsibly, he should ____.
pay the entire balance
The grace period is the _____.
period of time before the credit card company starts charging interest
the interest rate one is charged for one payment period, a rate that is usually the APR divided by twelve
periodic rate
the amount owed at the end of the previous billing period
previous balance
three of the costs that make up a mortgage payment
property taxes broker and attorney fees inspection fees
If a lender is not paid and they take the collateral that secured the loan, this is called _____.
repossession
the seizing of the collateral or item that secured the loan when the debt has not been paid
repossession
a loan in which the individual offers collateral; if the loan is not paid back as agreed, the individual gives up the collateral to the lender
secured loans
a type of credit or promise to pay for services, such as phone, electricity, and water
service credit
loans with very high interest rates
subprime lending
When an individual makes minimum payments on a credit card instead of paying as much as possible, _____.
the time it takes to pay off the credit card increases and the total cost increases
the most popular mortgage that has a fixed interest rate and a loan period of thirty years
traditional mortgage
Garnishment is what happens when a lender obtains money from an individual's employer to pay an unpaid debt.
true
Karina had an emergency fund saved. However, when she had to stay in the hospital, the bills added up to about $1,000 more than she had saved. She decided to use her credit card to pay for the remaining hospital bills. Was Karina using credit responsibly and being a good steward?
true
a loan in which the individual does not offer collateral; sometimes called personal or signature loans
unsecured loans
an interest rate that may change during the repayment period
variable rate
If you must apply for a loan, you should _____.
visit a loan officer at a financial institution and complete an application
To obtain your credit report, you should _____.
visit the official web site and complete the necessary steps
Grace makes $2,200 per month. She spends $300 on credit card payments, $120 per month for a furniture purchase, and $450 on an auto loan. Does she have excessive debt?
yes
