Questions and Answers
What is an Annual Fee?
What does Annual Percentage Rate (APR) refer to?
Cost of borrowing money on an annual basis
What is a Balloon Mortgage?
Home loan with insufficient monthly payments leading to a lump sum payment
What does Credit refer to?
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What is a Credit Card?
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What is a Credit Limit?
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What is a Debit Card?
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What is Debt Consolidation?
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What is a Debt Snowball?
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What is Depreciation?
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What is a Finance Charge?
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What does it mean to Foreclose?
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What is a Grace Period?
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What is a Home Equity Loan?
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What is an Introductory Rate?
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What is a Lease?
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What is a Loan Term?
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What is a Myth?
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What is a Paradigm?
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What is a Tax Deduction?
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What is Cash Advance?
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Debt consolidation is wise?
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You need a credit card to rent a car?
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Buying used cars is a good way to minimize depreciation?
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The typical millionaire drives new cars?
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The elderly are the number one target of credit card companies?
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Co-signing a loan is a way to help out a friend or relative?
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The lottery is a tax on the poor and on people who can't do math?
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Home equity loans are a good way to consolidate debt?
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It is never wise to take out an ARM or balloon mortgage?
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Paying off the balance of your credit card each month is an acceptable use of credit?
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The best way to teach teenagers about money is to get them a credit card?
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It is best to attack your debt by consolidating many payments into one?
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Carrying cash results in an increase of spending versus paying with credit?
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Why do people go into debt when they know they will have to pay more?
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Why are teens such a major target of the credit card industry?
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How do cash advance and car title companies keep people in the cycle of debt?
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Why is it better to buy a used car instead of a brand new vehicle?
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Why does debt consolidation typically not save money?
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Explain how the debt snowball works.
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What are the five steps to get out of debt?
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How can lending money cause problems in a relationship?
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Study Notes
Credit and Loans Terminology
- Annual Fee: A charge by credit card companies for account maintenance or usage.
- Annual Percentage Rate (ARM): The cost of borrowing expressed annually, including interest and fees.
- Balloon Mortgage: A mortgage with lower monthly payments; a lump sum payment is due at the end to settle the full debt.
- Credit: Funds that are borrowed, with the expectation of repayment.
- Credit Card: A financial instrument that allows users to purchase goods or services by borrowing against a set limit.
- Credit Limit: The highest amount a lender will allow an individual to borrow at any one time.
- Debit Card: A banking card that deducts money directly from a checking account for purchases.
- Debt Consolidation: Merging multiple debts into a single payment, often extending repayment terms.
- Debt Snowball: A strategy for paying off debts, focusing on the smallest debts first to build momentum.
- Depreciation: A decrease in the value of an asset over time.
Fees and Payments
- Finance Charge: The total cost incurred for using credit, expressed in dollar terms.
- Foreclosure: A legal process where a lender sells a property to recover unpaid mortgage loans.
- Grace Period: A designated time frame allowing a borrower to pay off credit without incurring interest.
- Home Equity Loan: A loan secured by the equity in a borrower's home, allowing access to funds.
Credit and Loan Products
- Introductory Rate: A temporary low interest rate offered to attract new credit card users.
- Lease: An agreement for renting property or equipment over a prolonged period.
- Loan Term: The designated time period within which a borrower must repay a loan.
Myths and Misconceptions
- Myth: Common false beliefs that can mislead individuals financially.
- Paradigm: Refers to personal belief systems that shape perceptions and decisions about finance.
Tax and Financial Management
- Tax Deduction: Expenses subtracted from taxable income, like mortgage interest or charitable contributions.
- Cash Advance: A service that allows borrowing against a credit limit, often with high fees involved.
Understanding Debt and Financial Habits
- Co-Signing: Agreeing to take responsibility for another individual's loan obligation, which may cause financial strain.
- Consumer Debt Awareness: Recognizing that the allure of convenience through credit can lead to financial difficulties and poor spending habits.
Strategies and Recommendations
- Buying Used Cars: A strategy to minimize financial loss due to depreciation, as new cars lose value quickly.
- Debt Consolidation Effectiveness: Often does not lead to savings; interest rates may be similar or higher.
- Debt Snowball Method: A systematic approach to paying off debts from smallest to largest, reinforcing positive behavior in financial management.
Lifestyle Choices and Spending Patterns
- Instant Gratification: The tendency to prioritize immediate pleasure over long-term financial health, which can lead to debt.
- Targeting Younger Consumers: Credit card companies focus on teens due to their potential for brand loyalty and relatively untapped market in adult borrowers.
Building Healthy Financial Relationships
- Lending and Relationships: Offering loans to friends or family can create underlying tensions and alter dynamics, leading to potential conflicts.
Steps to Financial Freedom
- Getting Out of Debt: Recommended actions include stopping borrowing, saving, selling assets, working extra hours, and implementing the debt snowball approach.
Studying That Suits You
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Description
Test your knowledge of key financial terms with these flashcards from Chapter 4. Each card focuses on important concepts such as annual fees, APRs, and mortgages. Perfect for students looking to reinforce their understanding of finance.
