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The Fair Debt Collection Practices Act regulates creditors.
False
You can dispute the debt or pay it within 30 days of receiving a written notice from a debt collector.
False
If you do not request verification of the debt within 30 days, you can no longer dispute the debt.
False
One of the reasons for debt is the need for financial security.
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You can request verification of the debt within 5 days of receiving a written notice from a debt collector.
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Paying the minimum balance each month is a sign of good debt management.
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Using savings to pay routine bills is a good way to manage debt.
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Borrowing money to pay off old debts is a good strategy to get out of debt.
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If you can't pay your bills, continuing to make credit purchases is a good idea.
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Not knowing how much you owe is a normal part of managing debt.
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In Malaysia, Agensi Kaunseling dan Pengurusan Kredit (AKPK) is a non-profit credit counseling service that can help with debt problems.
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The annual percentage rate (APR) is the total dollar amount you pay to use credit.
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Loans from parents or family members are considered medium-priced loans.
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The finance charge includes only interest costs and service charges.
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Bank credit cards and cash advances are considered inexpensive loans.
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APR is not important when shopping for credit.
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Certificates of Deposit (CD) are used as collateral for medium-priced loans.
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In the previous BLR system, the interest rate was determined by the Overnight Policy Rate (OPR) set by the central bank.
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The Statutory Reserve Requirement (SRR) is a component of loan pricing in the new BR framework.
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The Base Rate (BR) replaced the Overnight Policy Rate (OPR) in January 2015.
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The interest rate offered by Maybank under the BR system is 'base rate - 1.50%'.
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The new BR system has a significant impact on borrowers.
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The Base Rate (BR) set by Maybank is 2.75%.
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Add-on interest is calculated on the amount of original principal not yet repaid.
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The average daily balance method excludes new purchases from the average daily balance calculation.
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The previous balance method gives credit for payments made during the billing period.
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The two-cycle average daily balance method is used for a single billing cycle.
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The formula for simple interest is I = PxrxT.
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The cost of open credit is calculated using the simple interest formula.
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Study Notes
Debt Collection Regulation
- The Fair Debt Collection Practices Act regulates debt collection agencies, requiring them to send a written notice of amount owed, creditor's name, and right to dispute the debt within five days of initial contact.
- Consumers have the right to dispute the debt or request verification of the debt within 30 days; if not provided, they can insist that communication about the debt cease.
- If verification is sent, consumers may pay the debt or give notice that they will not pay.
Reasons for Debt
- Emotional problems, such as the need for instant gratification or pleasure
- Expectation of instant comfort among young couples who overuse installment plans
- Desire to show others that they have as much money as others
- Overindulgence or excessive gratification of children's wishes
- High finance charges making it difficult to repay debts
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
- Using up savings, borrowing money to pay old debts, or not knowing how much is owed
- Going over credit limit on credit cards, having little or no savings for unexpected expenses, or being denied credit due to a credit report
- Having a credit card revoked by the issuer
Consumer Credit Counseling Services
- Non-profit credit counseling services, such as Agensi Kaunseling dan Pengurusan Kredit (AKPK) in Malaysia, can assist consumers with debt problems
Sources of Consumer Credit
- Inexpensive loans: parents or family members, loans based on assets (e.g., using Certificate of Deposit as collateral)
- Medium-priced loans: commercial banks, savings and loan associations, credit unions
- Expensive loans: finance and check cashing companies, retailers such as car or appliance dealers, bank credit cards and cash advances
The Cost of Credit
- Finance charge: total dollar amount paid to use credit, including interest costs, service charges, credit-related insurance premiums, and appraisal fees
- Annual percentage rate (APR): percentage cost of credit on a yearly basis, allowing comparison of rates with other sources of credit
- Base Rate (BR) system in Malaysia: replaced the Base Lending Rate (BLR) structure, allowing banks to determine interest rates based on a formula set by the central bank
- Interest calculation formulas:
- Simple interest on the declining balance
- Add-on interest
- Adjusted balance method
- Average daily balance method
- Two-cycle average daily balance method
- Previous balance method
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Description
This quiz covers the sources of consumer credit, calculating interest, managing debt, and government assistance for debt problems. Test your knowledge of personal financial planning and credit management.
