Personal Finance (Financial Literacy) Pre-Test

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Shira is trying to decide between getting a debit card, a prepaid debit card, and a credit card. Which statement is true?

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All 3 cards are completely different

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Which of the following statements comparing credit and debit cards is TRUE? Far more businesses accept credit cards than debit cards, Credit cards pull money directly from your bank account, while debit cards get their money from Visa or Mastercard, Credit card companies provide you with a monthly statement, while debit cards do not, With debit cards, you're spending your own money at point of sale, but with credit cards, you're getting a loan that you need to pay back later

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With debit cards, you're spending your own money at point of sale, but with credit cards, you're getting a loan that you need to pay back later

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Which of these statements best explains why it's often a good idea to pay more than the monthly amount due on an amortized loan? Options: Every time you pay extra, the lender will reduce the interest rate they're charging by a small amount, The extra payment will be applied to the principal amount you owe, which will pay down your debt more quickly, The extra payment will be applied to the interest you owe, which will reduce the overall cost of your loan, Amortized loans typically have much higher interest rates than credit cards, so they're the best place to put your extra cash

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The extra payment will be applied to the principal amount you owe, which will pay down your debt more quickly

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If you are having trouble making auto loan payments and are really following a tight budget, which recommendation below represents the WORST advice? 1. Find an extra source of income by taking a second job, working longer hours, or borrowing from family if they can afford to help 2. Stop making payments on some of your debts so you can focus on getting the most expensive or largest debts under control 3. Continue making all payments and call your lenders and see if you can negotiate lower monthly payments, lower interest rates, or longer terms 4. Explore whether a free or non-profit credit counseling service could help

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Stop making payments on some of your debts so you can focus on getting the most expensive or largest debts under control

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When loans are amortized, monthly payments are ______ , while the amount of your monthly payment applied to interest ______ and the amount of your monthly payment applied to the principal ______ over time.

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Constant, Decreases, Increases

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Which of these credit payback strategies would lead to the HIGHEST overall cost? Paying off your credit card bill in full every month, Paying 20% of your credit card balance every month on time, Making the minimum payment (3% of your credit card balance) every month on time, Making the minimum payment (3% of your credit card balance) every month with an occasional late payment

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Making the minimum payment (3% of your credit card balance) every month with an occasional late payment

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Denise took out a payday loan for $300 in August. By February of the next year, she was able to pay back the loan, but she had spent a total of $750 doing so. What’s the most likely story of how this happened?

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Payday loans must be paid in full within two weeks, and if not, the only option is to renew the loan for a high penalty fee, which she did approximately 12 times.

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Taylor is about to go car shopping, and she has $5000 saved that she can use for a down payment while still having extra cash in her emergency fund. She expects the exact model car she’s looking for to cost $35,000. If her top priority is having the lowest monthly payments possible, which advice should she follow?

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Put in $5000 for your down payment, and choose a loan with a long term length.

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Reading through a credit card’s Schumer Box, you see the APR for a specific card is set at 9.99% - 23.99%. Which statement is true?

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Your APR will be within that range, depending on the strength of your credit history

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What is an advantage of using a credit card?

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You can make an emergency purchase that you otherwise don’t have the money to pay for right now