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Basics Beginner: Managing Your Debt

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1.
A disadvantage of refinancing a short-term loan to a long-term loan is that _______.
Choose wisely. There is only one correct answer.
It may cost more in the long term. Taking longer to pay a short-term loan costs more over time.
2.
Which type of loan typically has a lower interest rate: secured or unsecured?
Choose wisely. There is only one correct answer.
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.
3.
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.
4.
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.
5.
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.
6.
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.
7.
If you borrow money to buy an item that is able to provide cash income to you, that item can be called _______.
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An investment. Investments provide a return to you, such as income.
8.
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.