Questions and Answers
What is the most aggressively marketed product?
Debt
How much do Visa, Mastercard, Discover, and American Express spend over a year on marketing?
4
There were no credit cards prior to which year?
1958
What is the term for money owed to another person or company?
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Myth: You need a student _________ to go to college.
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What is the truth about going to college?
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What should you choose when selecting a school?
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What is credit that automatically renews whenever a payment is made to reduce the debt?
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What is something owned that is offered as security on a debt?
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What is a legal claim against an asset until the debt is repaid?
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What type of asset increases in value over time?
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What is the difference between the amount owed on a home and what it could be sold for?
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What is the failure to repay a loan on time called?
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What type of loan is paid back in monthly installments?
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What type of asset loses value over time?
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What term describes a lender who employs deceptive or unfair practices?
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Myth: I need to have a -------- score.
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Truth: A credit score is an 'I ----- debt' score.
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A FICO score is not an indicator that you are ------- with money.
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What is your most powerful wealth-building tool?
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You ----- rent an apartment without a FICO score.
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Without a FICO score, an extra ------ may be required.
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What is a statistical number that represents a consumer's creditworthiness?
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What is a company that collects credit rating information?
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Myth: I need a ------- card to rent a car and make purchases online.
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Truth: You can do both of these things with a ------ card.
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What type of fee do most credit cards charge?
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What is the average credit card debt for college students?
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Myth: Car --------- are a way of life.
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Truth: Avoid car ---- now and always.
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What is the average new car payment in America?
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What is the original amount of a loan referred to as?
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What is the additional cost a lender charges for borrowing their money?
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What is the amount of time you will be making payments on a loan?
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What is the loss of value of an asset over time called?
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What is it called when the value of an asset falls below what is owed on it?
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Take ---- off the table.
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Pay off all debt using the
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Paying off debt is not a math problem—it is a -------- problem.
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This is not a theory. It is a ------ process.
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Study Notes
Debt and Credit Overview
- Debt is the most aggressively marketed financial product in history.
- Major credit card companies such as Visa, Mastercard, Discover, and American Express spend over 4 billion dollars annually on marketing.
- The first credit cards were introduced in 1958.
Key Definitions
- Debt: The amount of money owed to another person or company.
- Revolving Credit: A type of credit that automatically renews as payments are made, reducing the outstanding debt.
- Collateral: Valuable assets offered as security for a loan, which can be forfeited if the debt is unpaid.
- Lien: A legal claim against an asset until the associated debt is repaid.
Asset Types
- Appreciating Asset: An asset that increases in value over time.
- Equity: The increase in home value over time, representing the difference between the amount owed and the potential sale price.
- Depreciating Asset: An asset that decreases in value over time, like a car.
Credit and Lending Myths
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Myth: A student loan is necessary for college attendance.
- Truth: College can be attended debt-free by choosing affordable institutions.
-
Myth: A high FICO score is needed for financial success.
- Truth: A credit score reflects one's debt status, not overall financial health.
Financial Tools and Responsibilities
- Your income is identified as the most powerful tool for building wealth.
- A FICO score is not required to rent an apartment, though additional deposits may be needed without it.
- Credit Score: A numerical representation of a consumer's creditworthiness, typically managed by a Credit Bureau.
Credit Card Insights
- Many people believe a credit card is necessary for online purchases and car rentals.
- Truth: Debit cards can also be utilized for these transactions.
- The average college student's credit card debt stands at approximately $1,400.
- Annual fees are commonly charged by credit card companies.
Debt Management Strategies
- The average car payment in America is around $554 per month.
- Principal: The initial sum of a loan before interest is added.
- Interest: The extra cost charged by lenders for borrowing funds.
- Term: The duration, in months, over which loan payments are made.
Behavioral Approaches to Debt
- Paying off debt is primarily a behavioral challenge, not just a mathematical issue.
- Use the "debt snowball" method to systematically eliminate debts.
- Adopting a zero-debt lifestyle is encouraged as a sustainable financial practice.
Studying That Suits You
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Description
Test your knowledge of key concepts in finance with these Chapter 4 review flashcards. This quiz covers important terms and facts related to debt and credit cards. Challenge yourself and enhance your understanding of financial products and marketing strategies.