Topic 5 Good and Bad debt Flashcards
(20 cards)
What are the benefits of borrowing
Can cover a deficit
Make big purchases like a mortgage
What is the “cost” of borrowing
The interest rate
What financial products have the highest interest rate
Mortgages
Personal loans
Credit cards
Store cards
Payday loans
What happens if you don’t pay back a secured loan
THe item the loan is “Secured on” will get taken away
What happens if you don’t pay back an unsecured loan
The consumer can get a poor credit rating and can be taken to court, leading up to bankruptcy.
How many homes were repossessed in 2009
46,000
What does arrears mean
Money that should of been payed back already (late repayments)
What things should people consider whilst taking out a loan
IF their are other loans around which are better
If the time period is good (25 years for a house is good,25 years for a phone is bad)
If the price of the loan corresponds to the item
3 Websites to check your credit score
Experian
Equifax
TransUnion
Who checks your credit score on websites
Lenders
What methods do people in debt have
Consolidation loan
Use an organization like citizens advice
What debts are the most important
Secured loans
Priority bills, (Council tax, child support)
A loan that you need (Need a car to get ot work)
What happens in an informal payment plan
If you have money left over monthly, you should call your lender and show them your not buying luxury’s and usually they will agree to cheapen the loan repayments
What is a debt management plan
Will contact the consumers lenders and sort out affordable repayments, the debtor then makes 1 monthly repayment to the debt management plan and they will pay the creditors for them
What is the administration order
A debt management plan which instead of a company doing the repayments the court will, Debts must be under £5000
In what situations can a debtor not use a debt management plan or an administration order.
The creditors might not agree to it
The debtors might not make the repayments
The debtors might have ccjs against them
have more than 5k in debt
What is an individual voluntary agreement (IVA)
A licensed insolvency practitioner will set up agreements with creditors to pay of the debt.(Usually around 30-40% of the debt actually owed). THe debtor will pay normally around 200 a month to the practitioner for 5 years and after the rest of the debt will be discharged. This normally come with lots of fees.
What is a debt relief order
Requirement - less than 30k debt
No more than £75 surplus
monthly
No more than 2k in assets
Can get a form off of a debt advice website(Stepchange eg) and this is sent off, repayments last for a year then the rest of the debt is discharged
Explain bankruptcy.
Can occur when either you or a creditors asks the court to file you for bankruptcy. There are legal fees of £700. Repayments are made by selling your assets and the money being spread over the creditors.
Disadvantages of bankruptcy
damaging financial footprint for 6 months
Embarrassment
Debtor can lose their house
Have to have basic bank account for 6 years
Cant be certain jobs
