Credit/Debt Review

Which word represents the total cost of the item you’re purchasing on credit minus any down payment you make upfront?

• Principal

• APR

• Term

• Interest Rate

Each of the following represents an installment loan EXCEPT…

• Student Loan

• Credit Card

• Mortgage

• Auto Loan

Which of these is a Secured Loan?

• Student Loan

• Personal Loan

• Payday Loan

• Auto Loan

Which of these actions would most likely decrease a person’s net worth for at least the next 6 months?

• Use a loan to buy a brand new car

• Work 10 hours of overtime each week and put all extra earnings into a savings account

• Work 10 hours of overtime each week and use all extra earnings to pay down student loan debt

• Open 3 new credit cards but don’t spend any money on them

Which statement is true of both debit AND credit cards?

• Both can trap you in an endless cycle of debt if you’re not careful

• Both allow you to make purchases in a store or online

• Both typically have interest rates between 10-30%

• Both require you to pay a minimum monthly payment when your bill arrives

Felix opens a credit card with no annual fee, so he assumes that using the credit card regularly will be absolutely free for the next two years while he finishes grad school. Why is his assumption incorrect?

• Unless he pays the whole bill every month, he will pay interest according to his APR

• He will automatically pay penalty fees if he uses his credit card for more than 3 consecutive months

• If his grace period is any longer than 10 days, he will have to pay fees

• He will need to pay a separate student fee because he is still in grad school

Which statement best describes a Schumer box?

• The final calculation of how much you owe on your credit card bill each month

• A standardized way of presenting the key terms of your credit card agreement

• A legal document stating that you’re behind on your credit card payments

• The outstanding balance on your credit card once you’ve made your recent payment

Which best describes how a credit card works?

• The credit card company extends you a line of credit. You then pay a small percentage of the cost of those purchases in one annual payment.

• The credit card company extends you a line of credit. You purchase "stuff" and the purchase gets directly paid with funds in your checking account.

• The credit card company extends you a line of credit. This is free money that you can use to purchase the "stuff" that you need.

• The credit card company extends you a line of credit. You purchase "stuff" and then have the choice to pay the balance in full or a minimum payment each month.

What is the advantage of paying your credit card balance in full each month?

• You will incur only a small "paid in full" fee on your next credit card statement

• You pay only a small amount of interest

• You have less of your credit limit available, therefore, less temptation to spend

• You avoid paying any interest and fees

What is an outstanding balance?

• The amount you paid in your minimum payment

• The amount you spent in total

• The amount you still owe after you have made your most recent payment

• The amount you still have in your life of credit