Finance Chapter 4 Review Flashcards

Debt is the amount of money owed to another person or company.

Revolving credit is a type of credit that allows you to borrow money repeatedly, making payments that reduce the outstanding debt.

Collateral is valuable assets used as security for a loan, which can be taken if the debt isn't repaid.

A lien is a legal claim against an asset until the related debt is paid off.

An appreciating asset increases in value over time.

Equity is the increase in home value over time, representing the difference between what's owed and the selling price.

A depreciating asset loses value over time.

No, you can attend college without debt by choosing affordable institutions.

No, a credit score only reflects your debt status, not your overall financial health.

Your income is the most powerful tool for building wealth.

No, but you may need additional deposits without it.

A credit score is a number representing your creditworthiness, managed by a Credit Bureau.

No, debit cards are also accepted.

The average college student has around $1,400 in credit card debt.

Yes, credit card companies often charge annual fees.

The average car payment is about $554 per month.

The principal is the initial amount of money borrowed.

Interest is the extra cost charged by lenders for borrowing money.

The loan term is the duration (in months) over which loan payments are made.

Debt management is primarily a behavioral challenge, not just a mathematical one.

The debt snowball method systematically eliminates debts from smallest to largest.

A zero-debt lifestyle aims to live without any debt.

Credit is a fundamental aspect of personal finance, influencing borrowing opportunities, interest rates, and overall financial well-being.

Excessive debt can negatively affect your credit score, increase financial stress, limit your borrowing options, and hinder your ability to reach financial goals.

To make responsible credit decisions, it’s important to understand your budget, prioritize needs over wants, avoid impulse purchases, and actively manage your credit utilization.

Credit history plays a significant role in obtaining loans, mortgages, and other financial services. It is crucial to maintain a positive credit history to access favorable interest rates and better financial opportunities.

To build good credit, pay bills on time, keep credit utilization low, avoid opening too many accounts at once, and monitor your credit report regularly.

Credit affects everyday financial decisions, including renting an apartment, getting a loan for a car or education, securing a mortgage, and even securing certain jobs.