Borrowing Money

Guidelines to staying out of debt

What is credit ?

Credit is a tool to help you, as an individual, buy something now, and pay for it later.

5 C's of Credit

  1. character - have a good reputation
  2. capacity - have the ability to repay debt
  3. capital - know what items you have in debt
  4. conditions - circumstances affecting your life
  5. collateral - security for repayment, what they can take away

Terms

  • simple interest - quick way to calculate the interest charge on a loan.
  • rate - what you will be charged.
  • principal - what the items costs without interest.

Advantages / Disadvantages of Using a Credit Card

advantages

  • easy convenience
  • good for record keeping
  • purchase protection
  • instant cash

disadvantages

  • charges fees
  • may cause overspending
  • teaser rates
  • paper work
  • deepening your debt

Types of Loans

  • conventional - mortgage loan not secured by the government.
  • secured - the borrow pledges their assets as collateral.
  • unsecured - issued by credit worthiness.
  • installment - repaid over time on a set schedule.
  • close ended - must be paid in full by deadline.
  • payday - small loan lent at a high interest rate before paycheck (avoid)


ALL LOANS HAVE INTEREST !

Myths

  • carrying a balance on your card will help your credit score.
  • canceling your credit cards will help your credit score.
  • paying off loans early is better than making payments.
  • paying before the due date will boost your credit score.

Amortization Schedule

  • a schedule detailing each periodic payment on a amortizing loan.
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