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Basics Beginner: Managing Your Debt

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1.
Debt is always a bad thing.
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False. Provided we use it wisely and pay it back, debt can provide us with many much-needed things, including assets that can rise in value.
2.
To determine how much you should pay each month on credit card bills, _______.
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Use a financial calculator. Enter the number of months, interest rate, and principal balance to calculate the monthly payment.
3.
Which of the following is TRUE about using a consumer credit counseling or debt consolidation service?
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Creditors are willing to work with these services to renegotiate or consolidate your debt. Although creditors are willing to work with you and a credit counseling or debt consolidation service, you must be wary because some are shady, charge high fees, or could damage your credit rating if they renegotiate your debt.
4.
Which type of loan typically has a lower interest rate: secured or unsecured?
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Secured. Secured loans, which are backed by collateral (such as a house or car), have lower interest rates, because having collateral lowers the risk of loss for the lender.
5.
Your recurring monthly debt payments (such as credit cards) should be considered _______ in your budget.
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Ghosts of prior expenses. Although you may pay them every month, they are not current expenses. They are remnants of past expenses that you must pay off over time.
6.
A disadvantage of refinancing a short-term loan to a long-term loan is that _______.
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It may cost more in the long term. Taking longer to pay a short-term loan costs more over time.
7.
Your creditors may be willing to work out debt repayments rather than have you file for bankruptcy.
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True. Creditors would rather receive some payment than risk not getting any payments should you resort to bankruptcy.
8.
A good way to reduce your monthly debt payments is to pay only the minimum amount due on credit card statements.
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False. Paying the minimum amount due on credit card statements will only increase the time and money paid on a debt.