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105 Cards in this Set
- Front
- Back
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Types of Homes
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- single family
- condo - town home - Co-op - Manufactured home - Prefab home - Apartment |
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Single Family Home quality?
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Lower than a Manufactured home
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Only type of home that cannot be a rental?
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Co-op
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Benefits to a Single Family home?
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privacy, ownership
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About a Condo
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own airspace; Association owns walls
Cons: maintenance |
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Co-Op
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Cooperative apartment
a "stockholder" in the building ownership |
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Prefab home
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build from multiple pieces
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Manufactured home
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made in a factory and delivered
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Why purchase a home? (4)
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1. Pride of Ownership
2. Inflation hedge 3. TAx shelter (write off prop tax or mortgage interest) 4. Investment (tax free capital gains $250,000 single; $500,000 couple) |
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Why Rent?
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1. uncertainty about location
2. No funds for down payment 3. Poor credit 4. Wait for availability |
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Percentage of adults own vs. rent home?
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2/3 own
1/3 rent |
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Most expensive housing markets in US are...
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major metropolitan areas
(Boston, NY, Seattle, Honalulu, San Fran) |
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Subprime Borrower
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person w/ poor credit history or poorly documented income
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Home Buying Costs
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1. Down Payment
2. Closing Costs |
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mortgage insurance
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protect lender, not buyer
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Down Payment
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~20% of purchase price
if less, must buy mortgage insurance |
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Government Guaranteed and Insured Insurance
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FHA (Federal Housing Association)
VA (Veterans Assoc) |
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Conventional Loans
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not guaranteed or insured by govt.
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PMI
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private mortgage insurance
conventional loan - no govt guarantee |
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Homeowners Insurance Protection Act of 1998
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lenders must cancel mortgage insurance when homeowner's equity exceeds 22%
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Closing Costs: Buyer's Deposit
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put $ down to take off market
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Closing Costs: Earnest Money
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put $ down to take off market
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Closing Costs: escrow account
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hold $ in trust (neutral 3rd party) for exchange
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Closing Costs: Loan App Fee
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serious about buying; buyer puts $ to determine loan amt
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Closing Costs: Loan Origination Fee
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buyer $
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How long does a typical person live in a home?
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5-7 years
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points
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1 pt = 1% of loan amount (not including down payment)
- can be used to lower interest rate |
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are using points recommended?
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NO - will never see savings b/c of too short life in house
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Closing Costs: appraisal fee
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best for used homes
probs w/ house - fix or mark-down price |
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Closing Costs: Title Search and Insurance
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current owner responsible for prior non-payments (classified as a loan)
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Closing Costs: termite inspection
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look for bugs - fumigate or lower cost
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Closing Costs: Prorated charges for property tax
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WHAT?
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Closing Costs: recording fees
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to be probably added
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Closing Costs: home inspection
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- good thing to have done -> a walk-through w/ expert
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Closing Costs: home warranty
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in case something happens to home or deal
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Closing Costs: Prepaid interest
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if 1st payment more than a month away
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Mortgage
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pledge of real property to secure a debt
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Mortgagor
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borrower
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Mortgagee
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lender (bank, etc)
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Mortgage loans: Fixed Rate
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payments will not change
Must Qualify! |
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Mortgage Loans: Adjustable Rate (ARM)
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interest rate tied to a particular index plus a margin.
Adjustment rate caps: yearly Lifetime cap: change per life |
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ARM of 2,6
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adjustable rate cap of 2% and a lifetime max of 6%
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Mortgage Loans: Interest Only
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pay only interest?
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Monthly Payments include...
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PITI
Principal Interest Taxes (property) Insurance (homeowners) |
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Pre-approved?
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Good idea - know max loan amt available when shopping around
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Mortgage payment alone...
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25-30% of gross monthly income
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Total for all Loan Payments...
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33-38% of gross monthly income
(student, car, home) |
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BiWeekly payment programs
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end up saving some $ - could just pay more each month instead -- not locked into a payment, then
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Secured Loans
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collateral or cosigner
**do not be a cosigner |
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cosigner
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responsible for debt/amt if other person defaults
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Unsecured loans
(consumer loan) |
no collateral
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Signature loans
(consumer loan) |
no collateral
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Types of Consumer Loans
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1. Auto
2. School 3. Furniture/household appliance 4. consolidation |
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What should you do before agreeing to a loan or credit?
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SHOP AROUND
dif times + dif interest rates |
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Installment Loans
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1. Banks
2. Credit Unions 3. Finance Companies 4. Retailers/manufacturers |
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What is the worst institution to get an Installment loan from?
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Finance Companies
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Loan Disclosure Statement: Optional or Required
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Required!
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Loan Disclosure Statement
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1. Annual Percentage Rate or APR
2. Total Value of all Payments 3. Actual loan amt 4. Total Finance (interest) cost |
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Acceleration Clause
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if you miss a payment (or a specified number of payments), entire loan balance due
(allow repossession of product) |
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Recourse Clause
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what lender will do if you default
You may pay... court costs OR higher interest rate |
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Balloon Payment
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smaller monthly payments used but won't pay off loan during time frame.
Final Payment VERY LARGE! |
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Example of Balloon Payment schedule
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Mitsubishi
pay $299 for 59 payments final payment ~$17,000 |
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How to work around a balloon payment schedule?
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- refinance before final payment
- sell b4 final payment |
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Consumer Credit
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nonbusiness debt used by consumers for nonmortgage expenditures
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Why is having credit important?
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- ability to buy and pay over time products/services could not usually afford
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How do you develop strong credit?
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Pay bills on time
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Credit Score
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one number summarizing and grading credit-worthiness
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Most common credit score?
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FICO - Fair, Isaac, & Co.
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Factors determining Credit Score?
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1. On time payment history (35%)
2. Length of credit hist (15%) 3. Amount owed (30%) relative to credit limit 4. New credit (10%) --> fewer inquires can raise score 5. Type of credit used (10%) - more diversification is better |
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How much of take-home pay should credit charges be?
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20%
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5 C's of Credit
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1. Character - will u repay loan?
2. Capacity - ability to repay? 3. Capital - assets + net worth? 4. Collateral 5. Conditions - eco cond + job security |
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What is the credit score range?
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0 to 900
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3 Types of Consumer Credit
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1. Single-payment loans
2. Revolving Credit 3. Service Credit |
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Example of a Single Payment Loan (consumer credit)
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Buy stocks on margin
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Example of a Single Payment Loan (consumer credit)
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Buy stocks on margin
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Revolving Credit
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credit is extended in advance of actual transaction
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Revolving Credit
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credit is extended in advance of actual transaction
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Revolving Credit
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1. dept store
2. Visa Affinity Cards 3. MasterCard 4. American Express 5. Personal line of c. (unsecured) 6. Home equity line of c. 7. secured credit card requires a deposit [ie. debit card] |
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Service credit
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full payment not required when services are rendered (utility co.)
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#1
Credit Card Aspects: Teaser Rates |
attractive rates to buy card initially
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#2
Credit Card Aspects: Default Rates |
very high APRs that are assessed whenever certain rules of account are violated [ie. overdue payment]
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#3
Credit Card Aspects: Variable Interest RAte |
are fixed rates of cards really fixed -- NO!
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#4
Credit Card Aspects: Fees |
Annual + Late payment fees + over-the-limit charges
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#5
Credit Card Aspects: Liability |
To what degree are you liable for lost/stolen cards
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#6
Credit Card Aspects: CC Insurance |
to reimburse you for 1st $50 of lost/stolen card
**Not worth buying** |
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#7
Credit Card Aspects: Credit Life Insurance |
pay off balance if you become sick or die
**Do not purchase - acct auto closes** |
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CC Advantages
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1. interest free grace period (~20+ days)
2. record keeping 3. convenience 4. available for emergencies |
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Disadvantages of CC
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Convenience!
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3 Major Credit Bureaus
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#1 = Experian - 90million credit files
#2 = Equifax #3 = TransUnion |
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Usury Law
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state laws governing interest rates.
AZ = 36% annual interest limit |
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Credit Legislation
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all laws are to protect cc users!
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Credit Legislation:
Equal Credit Opportunities Act |
main purpose is to prohibit discrimination
**originally for gender** |
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Credit Legislation:
Fair Credit Reporting Act |
- 30 day deadline to fix mistakes
- creditors must give accurate info - job applicant must give permission to pull credit report - toll-free numbers for FAQs + remove from lists - one free credit report annually from each major credit bureau |
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Credit Legislation:
Fair Credit Billing Act |
time frames for renewing, disputes, stop payments for defective or missing purchases!
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Credit Legislation:
Consumer Credit Protection Act |
"Truth in Lending Act"
- accurate fee disclosure - APR - limited liability of $50 per card **must call in immediately!** |
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Consumer Credit Counseling Services (CCCS)
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non-profit org providing debt counseling services for families/individuals w/ serious financial probs
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What is Chapter 13 bankruptcy called?
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"Wage Earner Plan"
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Bankruptcy: Chapter 13
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debt restructure or repayment plan allowing the debtor to keep assets and make easier payments (interest + late fees may be dropped) --> should be employed when filing
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Bankruptcy: Chapter 7
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allow debtor to restart w/ clean slate.
keep certain assets (car, sometimes home) but many must be sold to satisfy claims * most debts erased |
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How long before you can file for Chapter 7 again?
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8 years
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Chapter 7 Bankruptcy is called what colloquially?
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Straight (Pure) Bankruptcy
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What loan is not erased when filing for Chapter 7?
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Student Loan
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Bankruptcy: Chapter 11
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high income earners and the debt restructure must be approved by creditors
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How can you get a free credit report?
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try to buy a car - dealer will run credit report for free.
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Example of Loan Disclosure Statement
Buy a car for $40,000 at 7.5% for 5 years |
1) 7.5%
2) Total of all payments = $48,120 [see 3rd chart] [40,000/1,000 = 40x20.05 = $802.00 x (12months)(5yrs)] 3) Borrowed = $40,000 4) Dif b/w cost and interest = $8,120 |
