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Basics Beginner: Managing Your Debt

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1.
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.
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.
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.
4.
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.
5.
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.
6.
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.
7.
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.
8.
Which type of goods usually become worth less over time?
Choose wisely. There is only one correct answer.
Consumer goods. Consumer goods are bought to be used up. Investment goods are bought to provide income or appreciation of value.