Investment propertyQuiz Your Credit Knowledge, Stability
Pay attention. There will be a test.
In 2004, the Durham, NC-based Center For Responsible Lending"s "Financial Education:
No Substitute for Predatory Lending Reform" revealed 96 percent of
consumers couldn"t compute interest costs of a loan because they lacked
"quantitative literacy," the ability to apply arithmetic to numbers in
written material.
In 2005, the federal Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
(BAPCPA) mandated that debtors filing for bankruptcy after Oct. 17, 2005
undergo credit counseling before they file. They must also complete a more
rigorous course in financial management before their debts could be
discharged.
Just last month, the Federal Reserve Board"s "Do Homeowners Know Their House Values And Mortgage Terms?"
revealed 41 percent of adjustable rate mortgage (ARM) holders didn"t know
the potential maximum interest rate for their loan, 35 percent didn"t know
how much the rate could increase in one adjustment period and 20 percent
didn"t even know their starting interest rate.
Home owners who fall into any of those categories are at risk of losing
their homes because they can"t determine costs crucial to keeping them
afloat financially.
That"s because if they can"t determine costs they can"t set financial
plans or goals to help them navigate rough seas.
With home ownership comes a need for a broad based knowledge of credit,
debt, budgeting, financing, even economics, market conditions and related
calculations and shopping-around comparisons that are often apples and
oranges.
At the very least you should know where to go for information related to
knowledge necessary for financially sound home ownership.
Lucky for you, April is Financial Literacy Month and only one day is
reserved for fools. The month should shape up to offer a bounty of just the
kind of information you need for sound financials
"In a time of negative personal savings rates and unprecedented levels
of consumer debt in this country, it is critical for consumers to take a
moment to assess their personal financial condition and overall financial
knowledge so they are able to live financially healthy lives," says the National Foundation for Credit
Counseling .
The foundation offers this true-or-false quiz to help you test your
financial knowledge and strength in the credit world.
You have too much debt if you can afford only the minimum
monthly payment on your credit cards.
True. You are tapped out. Make
major credit card purchases only when you can afford to pay them off in
three to six months. Otherwise the interest will squeeze you dry. At least
always pay more than the minimum required payment -- which amounts largely
to an interest-only payment that leaves the principal intact to accrue more
interest.
When my paycheck arrives, I should pay my rent and other
bills first and then see what is left over that I can then put into
savings.
False. Pay yourself first every payday. Put the money in a
savings account. Treat your savings as another monthly bill you are
committed to paying and build an emergency fund and retirement nest egg.
Spending more than 20 percent of your take-home pay on
credit card bills is a red flag of financial trouble.
True. Use your
credit card to pay for what is normally a cash purchase and deplete most of
your disposable income to pay off those purchases and there"s a good chance
you are over-extended. Lower the sails on spending, deploy a plan to pay off
your balances.
Any time you have a choice between paying two roughly equal
debts, you should pay the one with the lower interest rate first.
False. The longer you take to pay off credit card debt and the higher the
interest rate, the more that loan actually ends up costing. Pay off the
debts with higher interest rates first.
It is important to have an emergency saving plan to cover
living expenses for three to six months to protect myself from an
unanticipated event, such as losing a job or a medical emergency.
True.
A supply of emergency cash is a lot like insurance. It can equip you with a
life preserver should you hit choppy waters. It also prevents you from being
anchored to borrowing your way out of trouble.