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Basics Beginner: Managing Your Debt

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1.
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.
2.
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.
3.
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.
4.
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.
5.
A good way to reduce your monthly debt payments is to pay only the minimum amount due on credit card statements.
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False. Paying the minimum amount due on credit card statements will only increase the time and money paid on a debt.
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.
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.
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.