Types of Credit and Debt in the U.S.

Principal

• The amount borrowed.

• The interest rate applied to a loan.

• The total cost of a loan including interest.

• The duration of the loan period.

Types of Credit

• Different types of debt in the U.S.

• Types of loans available in Europe

• Credit card rewards programs

• Interest rates on savings accounts

Household Debt Categories

• Includes mortgages, auto loans, credit cards, student loans.

• Includes personal loans, payday loans, business loans, and mortgages.

• Includes only credit cards and student loans.

• Includes only auto loans and mortgages.

Set Loan Term

• Feature of amortized loans.

• A method to calculate interest rates.

• A type of unsecured loan.

• A strategy for debt consolidation.

Amortized Installment Loans vs. Revolving Credit

• Amortized loans have fixed payments; revolving credit varies.

• Both amortized loans and revolving credit have fixed payments.

• Revolving credit requires a down payment, while amortized loans do not.

• Amortized loans are only available for home purchases.

Credit Card

• An example of revolving credit.

• A type of installment loan.

• A form of secured loan.

• A method of saving money.

Monthly payment of a loan over time

• The monthly payment stays the same.

• The monthly payment increases each month.

• The monthly payment decreases over time.

• The monthly payment varies based on interest rates.

Key Observation in U.S. Debt

• Debt includes mortgages, auto loans, credit cards, and student loans.

• Debt only includes mortgages and auto loans.

• Debt is primarily made up of government bonds.

• Debt does not include any personal loans.

Amortized Loans

• Variable monthly payments that fluctuate with interest rates.

• Fixed monthly payments, pays down principal and interest gradually.

• Only interest is paid during the loan term, with principal due at the end.

• Payments are made annually instead of monthly.

Understanding Amortization

• Involves splitting payments into principal and interest.

• Is a method of calculating interest on a loan.

• Refers to the total amount of interest paid over the life of a loan.

• Is the process of paying off a debt in a lump sum.