Chapter 7 Review: Choosing a Source of Credit: The Costs of Credit Alternatives

Buying on credit is almost always cheaper than paying cash.

• True

• False

Parents or family members are often the source of the least expensive loans.

• True

• False

You may be able to borrow at a lower interest rate if you accept a shorter-term loan.

• True

• False

The fairest method of calculating interest on a credit card is the average daily balance method.

• True

• False

An increasing number of bankruptcy filers are well-educated, middle-class people.

• True

• False

You have two choices in declaring personal bankruptcy: Chapter 7 and Chapter 13 bankruptcy.

• True

• False

A "float" period can be defined as:

• the interest charged during one billing period.

• a certain number of days during which no interest is charged.

• a lump-sum loan from a credit union.

• the principal balance due on a loan.

One of the drawbacks of borrowing from parents or family members is that such loans:

• tend to be more expensive than other types of loans.

• can complicate family relationships.

• must be interest free.

• are legally prohibited from establishing repayment dates and terms.

If you find that you cannot make your payments, the first thing you should do is:

• skip town.

• declare personal bankruptcy.

• borrow from a loan shark to make the payment.

• contact your creditors and try to work out a modified payment plan with them.

Which of the following is/are a signal of potential debt problems?

• Paying only the minimum balance on credit card bills each month

• Missing payments or paying late

• Using savings to pay routine bills

• Depending on overtime to meet everyday expenses

• All of these are danger signals