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Basics Beginner: Managing Your Debt

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1.
Monthly debt payments are current expenses that you need to pay in your budget.
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False. Monthly debt payments are ghosts of prior expenses for which you did not have enough cash to pay at the time.
2.
You probably have too much debt if the percentage of your monthly loan payments (excluding your mortgage) to your monthly take-home pay exceeds _______.
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15%. Financial advisors agree that consumer debt in excess of 15–20% is probably too much debt and should be reduced.
3.
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.
4.
If you speak to your creditors when you start falling behind on your debts, they will refuse to work with you to make it easier to pay your debts.
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False. Though it isn't guaranteed, they may revise your loan terms to make it easier for you to keep paying. It is in their interest to get at least something out of you.
5.
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.
6.
Making a plan to eliminate your debt begins with _______.
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Setting a target date. Setting a target date will help you determine how much to pay toward the debt each month.
7.
Which of the following would most likely give you additional tax savings on your loan interest?
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Home equity loan. Interest on home equity loans may be tax deductible.
8.
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.