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Debt and Credit Essay Sample

Debt and Credit Pages
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1. If you use your car as _collateral___ (property used to secure a loan), and you do not pay the loan back, the creditor has the right to repossess your car.

2. When a bank extends you _credit___, it allows you to borrow money and pay it back later with interest.

3. The _truth in lending laws___ require lenders to disclose the monthly interest rates and the method they use to calculate finance charges.

4. The kind of organization that maintains a record of your past borrowing and bill-paying habits is a _credit bureau___.

5. Creditors use your ability to repay debt and your history of borrowing and repayment to give you a _credit rating which is their evaluation of your credit worthiness.

6. When you pay your credit-card bills, you pay back not only the principal but also interest and fees, which together are called _annual percentage rate___.

Paying Off Debt
You have a $3,000 balance on a credit card with an 18% APR, now you suddenly come into a $3,000 windfall. Should you payoff your debt or invest in the booming stock market? Examine the following chart, then answer the questions that follow.

| |Stocks at 12% per year |Credit card at 18% per year | |At Launch |$3,000 |$3,000 | |Year 1 |$3,360 |$3,540 | |Year 5 |$5,287 |$6,863 | |Year 10 |$9,317 |$15,701 |

7. After five years, how much greater would that original $3,000 debt be? $3863.27

8. How much would your $3,000 have earned in the stock market after 10 years? $6317.00

9. Which do you think is a wiser choice-investing in the stock market or paying off debt? Explain. It is wiser to pay off debt and build credit in order to have a great lifestyle in the future without credit people are not able to live the way they want. And it’s wiser to build credit than a small amount of money over a course of ten years in a market that fluxuates on a daily basis.

Reading a Credit Report
Information about how you use your credit is reported to credit bureaus, which compile the information into a credit report. Lenders will review your credit report when you apply for a credit card, and potential employers may review it when you apply for a job. Review the sample credit report below, then answer the questions that follow.

10. According to this report, how much total debt does Maria Hill carry?

11. Which account has Maria paid off? What was the largest balance she had on that account? Maria has payed off her account with Morgans Dept. Store the largest balance she has on that account is $127.00.

12. Which account has Maria been late in paying? How late was she? Maria is making late payments on her account with University Bank she was late with payments three times all payments were thirty days late.

13. Installment loans have a fixed number of payments and are often used for large purchases, such as a car. How much money has Maria borrowed in installment loans? $6940.00

14. A co-signer is a person with good credit who guarantees that a loan will be paid if the original borrower is unable to make payments. Which loan did Maria have a co-signer on? Maria used a co-signer with First City Bank on 2-2000. How much debt will the co-signer have to payoff if Maria is unable to? The co-signer would have to pay a total amount of $3217.00

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