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Basics Beginner: Managing Your Debt

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1.
Which of the following types of loans would you expect to have the lowest interest?
Choose wisely. There is only one correct answer.
Short-term secured. Short-term and secured loans generally have lower rates than long-term or unsecured loans.
2.
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.
3.
Which of the following would most likely give you additional tax savings on your loan interest?
Choose wisely. There is only one correct answer.
Home equity loan. Interest on home equity loans may be tax deductible.
4.
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.
5.
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.
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.
Making a plan to eliminate your debt begins with _______.
Choose wisely. There is only one correct answer.
Setting a target date. Setting a target date will help you determine how much to pay toward the debt each month.