DAVE RAMSEY CHAPTER 4 QUESTIONS AND ANSWERS The Second Foundation - Get out of debt The Third Foundation - Pay cash for your car What is a FICO score? - An 'I love debt' score Annual Percentage Rate - Cost of borrowing money on an annual basis; takes into account the interest rate and other related fees on a loan Deprecation - A decrease or loss in value Credit Report - A detailed report of an individual's credit history Loan Term - Time frame that a loan agreement is in force, and before or at the end of which the loan should either be repaid or renegotiated for another term Credit Card - Type of card issued by a bank that allows users to finance a purchase Credit Score - A measure of an individual's credit risk calculated from a credit report using a standardized formula Annual Fee - A yearly fee that's charged by the credit card company for the convenience of the credit card Debt Snowball - Preferred method of debt repayment; includes a list of all debts organized from smallest to largest balance; minimum payments are made to all debts except for the smallest, which is attacked with
the largest possible payments True/False: You must establish credit in order to buy a house - False True/False: If you are a victim of identity theft, you are only responsible for paying back half of the debt - False Which of the following is not a factor in determining a FICO score? A) Paying cash for all purchases B) Getting a personal loan from a bank C) Using credit cards D) Taking out a mortgage on a house - A. Cash will not build up credit card debt. Which of the following is not a good idea for getting out of debt? A) Quit borrowing money B) Get a part-time job or work overtime C) Borrow money from your parents to pay off the debt D) Sell something - C. Borrowing will only create a debt with a new person. Which of the following things cannot be done with a debit card but can be done with a credit card? A) Rent a car B) Purchase something online C) Go into debt D) Purchase an airline ticket - C. Cash will not cause you to go into debt. Why is an adjustable rate mortgage (ARM) a
bad idea? - The market value will change and the rates will rise, causing you to slowly start paying more money. Explain why financing a car is a bad idea. - You will be paying car payments every day for the rest of your life and the value of your car is decreasing every day. Describe the negative consequences of taking on debt. What effect can debt have on your future? - You will be bound to your debt for the rest of your life, and it will affect whether or not you are able to make large purchases. What are some things you can do to protect your personal information? - Always check your credit report to make sure there are no signs of identity theft. Explain how the debt snowball works. - You start by saving money by paying off the smaller debts and then using the money you save from not paying those debts, you are able to save and pay off the bigger debts. Money Myths/Truths: Myth 1: If I loan money to a friend or relative, I will be helping them. - Truth 1: The relationship will be strained or destroyed. Myth 2: By co-signing a loan, I am helping out a friend or relative. - Truth 2: The bank requires a co-signer because the person isn't likely to repay. Myth 3: Cash advance, payday lending, rent-to-own, title pawning, and tote-the- note lots are needed services for lower income people to help them get ahead. - Truth 3: These are horrible, greedy rip-offs that aren't needed and benefit no one but the owners of these companies. They are predatory lenders. Myth 4: The lottery and other forms of gambling will make me rich. - Truth 4: The lottery is a tax on the poor and on people who can't do math. Myth 5: You need a credit card to rent a car or make a purchase online or by phone. - Truth 5: A debit card does all of that.
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