38 Questions
What is the suggested first step for utilizing extra money according to the text?
Invest in a washer and dryer or a freezer
What is the recommended financial goal in case of lay-off, illness, or emergencies?
Saving six to twelve months of monthly expenses
What is the key advice given regarding budgeting in the text?
Distinguish between 'needs and wants'
What is the caution given regarding the use of extra funds for rewarding oneself?
Keep it in moderation
What are the potential consequences of not planning and budgeting for necessary monthly expense payments?
Incurring high interest rates and financial penalties
Why do many people end up with very low credit scores according to the text?
Missed payments and compounded higher interest rates
What is the major reason for the high financial consequences of not planning and budgeting for promotional purchases?
Enduring higher interest rates that cost much more
What is recommended for better financial management?
Using an accounting ledger book to track monthly income and expenses
What should be prioritized over wants in budgeting?
Needs such as food, shelter, clothing, utilities, and transportation
What is essential to avoid financial strain when planning for larger ticket purchases?
Planning and budgeting
What should be done with discretionary income after meeting overhead expenses?
Saved for major purchases
How should credit cards be used for major purchases?
To earn reward points, but pay off the balance in full when due
What can be used for planned future expenses such as home repairs and vacations?
A sinking fund
What is crucial to avoid financial strain when budgeting for major purchases?
Budgeting for major purchases like a replacement car or a vacation
What factors should be considered when buying a vehicle?
Intended use, new or pre-owned, purchase or lease, reliability, longevity, and value
What does the text emphasize in making wise financial decisions?
Focusing on needs over wants
What should be done before making unnecessary 'want' purchases like replacing furniture?
Encourages thoughtful consideration
What is a crucial step for making informed decisions about major purchases?
Thorough research and budgeting
What is a potential downside of 0% APR financing for major purchases?
Defaulting incurs high interest
What can happen if one defaults on a deferred interest program for a major purchase?
High interest rates are incurred
What is a risk associated with longer financing terms for major purchases?
Increased risk of defaulting in emergencies
What can happen if one defaults on a 0% APR interest loan for a major purchase?
It can spiral out of control, impacting credit scores
What is a common strategy used by retailers to promote major purchases?
0% APR financing for several months to years
What is the impact of defaulting on promotional programs for major purchases?
Unforeseen costs and regret
What type of lenders often finance enticing promotional offers for major purchases?
Sub-prime lenders
What is a potential advantage of 0% APR interest programs for major purchases?
Advantageous if monthly payments are made as agreed
What is the purpose of thorough research and budgeting for major purchases?
To make informed decisions and get the best value
What is a potential consequence of relying on emotional and impulsive purchases for major items?
Defaulting on promotional programs
What is a potential outcome of financing major purchases with sub-prime lenders?
Charging high interest rates for defaulters
What happens if a $4,000 0% financing loan is defaulted after 12 months of paying on time?
The loan balance becomes $7,137 with a 30% APR interest rate
What are the consequences of defaulting on a Deferred Interest Period Program?
Revocation of program perks and a requirement to pay a 30% APR interest rate from the original date of purchase
How much interest payments can defaulting on a $2,000 Deferred Interest loan after 12 months result in?
$3,057 at a 34.6% APR interest rate
What is the potential impact of making a cash advance to pay off high-interest promotional loans before defaulting?
Lowering the potential interest rate by 20% or more and eliminating a defaulted loan on a credit report
What happens if a 72-month Deferred Interest loan is defaulted?
It can cost over $11,071 in interest, 2.77 times the amount financed, or 277% interest when calculated from the start of the loan
What is the consequence of defaulting in the 12th month of a 24-month promotion period for 0% APR interest?
A 30% APR interest rate is applied to the last twelve months of the unpaid balance
What is the impact of defaulting in the 12th month of a Deferred Interest Promo?
Paying the higher interest rate from the first month until the loan is paid in full, making the cost of the loan much higher
What is the potential benefit of taking a cash advance on unused credit card balances to make payments on high-interest promotional loans?
Avoiding defaulting and keeping payments lower than a 30% APR interest rate
What is the potential impact of defaulting on promotional programs?
Ruining credit ratings and causing financial hardships
Study Notes
The Dangers of Defaulting on Promotional Loan Agreements
- Defaulting on a loan agreement with 0% APR financing for furniture can lead to a 30% APR interest rate on the unpaid balance from the date of the missed or late payment, significantly increasing the amount owed.
- For a 0% financing loan of $4,000, defaulting after 12 months of paying on time leads to a loan balance of $7,137, and for an $8,000 loan, the balance becomes $14,275, both incurring a 30% APR interest rate.
- Deferred Interest Period Programs offer no interest during the first 6-24 months, but if the entire balance is not paid off by the end of the term, interest is charged from the original date of purchase.
- Defaulting on payments for Deferred Interest Period Programs results in the revocation of program perks and a requirement to pay a 30% APR interest rate from the original date of purchase.
- Taking a cash advance on unused credit card balances to make payments on high-interest promotional loans can help avoid defaulting and keep payments lower than a 30% APR interest rate.
- Defaulting on a $2,000 Deferred Interest loan after 12 months can result in over $3,057 in interest payments, and for a $4,000 loan, it can lead to $6,113 in interest payments, both at a 34.6% APR interest rate.
- Defaulting on a 72-month Deferred Interest loan can cost over $11,071 in interest, 2.77 times the amount financed, or 277% interest when calculated from the start of the loan.
- Defaulting on promotional programs can ruin credit ratings and cause financial hardships.
- Defaulting in the 12th month of a 24-month promotion period for 0% APR interest results in a 30% APR interest rate applied to the last twelve months of the unpaid balance.
- Defaulting in the 12th month of a Deferred Interest Promo requires paying the higher interest rate from the first month until the loan is paid in full, making the cost of the loan much higher.
- Making a cash advance to pay off high-interest promotional loans before defaulting and paying off the balances at a lower interest rate on credit cards can lower the potential interest rate by 20% or more, and eliminate a defaulted loan on a credit report.
- Long-term promotional loans, such as 48-72 month terms, increase the risk of defaulting over a longer period of time, making it crucial to plan and budget for these purchases.
Learn about the risks and consequences of defaulting on promotional loan agreements for furniture and other purchases. Understand how defaulting can lead to high APR interest rates, increased loan balances, and financial hardships. Discover strategies to avoid defaulting and manage promotional loan payments effectively.
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