Personal Finance Chapter 4 – Flashcards
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Paycheck Garnishment
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Court order that allows the lender to take money directly from borrower's paycheck
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Number one key to building wealth
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Staying debt free
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Largest Wealth building tool
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Income
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How much more do you spend when paying with a card rather than cash?
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12-18%
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Upside down
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owing more for a car than what it is worth
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2 reasons teens are targeted by credit cards
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Brand loyalty to 1st and adult market is already saturated
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Number 1 target of payday lending
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Military people
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How is debt a product?
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It is marketed to us
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The borrower is what to the lender
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The slave
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Is credit necessary to survive?
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No
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What percent of Americans are living paycheck to paycheck
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70%
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Myth
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A small lie within a big lie
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The first credit card
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Diner's club card in 1950 by Frank McNamara
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Payday lending avg. return interest
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400-800 % annual
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What percentage of millionaires are 1st gen rich
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80%
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What percentage of people have seen a relationship end over not paying back loans
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57%
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Number one target of credit cards
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Teens
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Home buying tips:
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10% down, payment should not be more than 25% of monthly income, no more than a 15 year fixed mortgage
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How much value does a car lose
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25% after driving off the lot and 70% after 4 years
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Steps out of debt
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Save, sell something, use the debt snowball
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Fico score
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I love debt score; measure of how you interact with debt
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5 components of fico score
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Debt history- 35%
Debt levels- 30%
Duration of debt- 15%
New debt- 10%
Type of debt- 10%
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How can you buy a house without a fico score
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With Manual Underwriting
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ARM
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Rates that change based on market conditions
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Credit report
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Detailed report of an individuals credit history
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3 credit bureaus
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Experian, Transunion, and Equifax
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FCRA
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Fair credit reporting act
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FCRA addresses
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Privacy, accuracy, and fairness
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Identity theft
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fastest growing White-collar crime
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How long does it take to clean up after having your identity stolen
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600 hours
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What to do if your identity is stolen
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Place fraud victim alert, file police report
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Credit score
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measure of an individuals credit risk; calculated from credit report using a standardized formula
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How long does bankruptcy stay on your credit report
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10 years
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What percent of families have a negative net worth?
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25%
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Negative net worth
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Means owing more. assets - liability = net worth
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Debt snowball
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list debt from smallest to largest. pay first off, add that to next. keep adding that payment to the next as things pay off
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Drive Free method
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save for 10 months, pay cash for used car, keep saving, buy another used car with that and trade off. put money you would put towards car payment in mutual fund. Let interest build yielding 12%. Drive reliable used cars.
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Why do we overspend with cards?
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Because paying with cash brings pain
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Largest purchase that loses value
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car
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Which is safer, credit or debit?
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Same. Debit has same protections if run as credit
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What does fico stand for
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Fair Isaac Corporation
