Choose wisely. There is only one correct answer to each question.
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1.
Your recurring monthly debt payments (such as credit cards) should be considered _______ in your budget.
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.
2.
When calculating payments for debts that use different interest rates, it is most effective to use the debt with the highest interest rate.
True. This can help you pay off your total debt faster.
3.
Which type of loan typically has a lower interest rate: secured or unsecured?
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.
4.
You will usually have to pay additional costs for the privilege of consolidating your loans.
True. Take these costs into account before you consolidate loans.
5.
If you borrow money to buy an item that is able to provide cash income to you, that item can be called _______.
An investment. Investments provide a return to you, such as income.
6.
Which of the following is true about bankruptcy?
It should be your last resort to resolve debt problems. Chapter 7 is liquidation bankruptcy, while Chapter 13 restructures your debt.
7.
Your creditors may be willing to work out debt repayments rather than have you file for bankruptcy.
True. Creditors would rather receive some payment than risk not getting any payments should you resort to bankruptcy.
8.
You probably have too much debt if the percentage of your monthly loan payments (excluding your mortgage) to your monthly take-home pay exceeds _______.
15%. Financial advisors agree that consumer debt in excess of 15–20% is probably too much debt and should be reduced.