Purchase Decision Basics
Original amount of money borrowed or invested excluding interest
"Principle"
Right answer=Pay off $20
Wrong answer=$10 deeper into debt
The highest amount a credit card issuer allows you to borrow at one time.
Credit Limit
The process of paying off debt through regular, scheduled payments toward both principal and interest.
Amortization
If you only pay the minimum on a credit card, you will end up paying this amount of interest over time.
significantly higher amount
Imagine you're playing the game and you land on a space that says "Need to fix your car, $200." How would you first try to pay for this? What would be your second option?
This would be first paid for with the available balance gained from answering questions correctly and the income from the pizza joint. If the player is in debt, they must take out another credit card loan.
What is the acronym represents the yearly cost of borrowing with interest and fees?
APR(Annual Percentage Rate)
Right Answer=Pay off $20
Wrong Answer=$20 deeper into debt
This 21-25 day window allows you to pay your balance in full without accruing interest.
Grace Period
In the early years of a mortgage, most of the payment goes toward this, rather than the principal.
Interest
To pay less interest over the life of a loan, you should do this, which involves paying more than the minimum.
paying more principal
Imagine you land on a space that says "It's your birthday +$150." What would you do with this one-time extra money and why?
This extra money would go to paying off as much credit card debt as possible. Anything that is left would go into a savings account.
Length of time that a loan is active
Term
Right Answer=Pay off $30
Wrong Answer=$30 deeper into debt
The absolute lowest amount you must pay to avoid late fees and a penalty APR.
Minimum Payment
A loan where the interest rate stays the same for the entire term.
Fixed-Rate Loan
Mario has a $1,300 per month amortized house payment at a 20% APR; this is roughly what he will pay in interest in over 24 months without refinancing his property.
$6240
Using credit to buy things you cannot afford leads to this financial state, making it hard to catch up.
Debt
If you were to borrow $10,000 at 5% simple interest for 2 years, what would the interest be?
$1000
Right answer=Pay off $40
Wrong answer=$40 deeper into debt
Fees charged for a cash advance or using an ATM to take cash from your card.
Transaction Fees
A loan where the interest rate can change periodically, often starting lower than fixed rates.
Adjustable-Rate Mortgage (ARM
This is the most crucial factor to consider when choosing a credit card if you plan to carry a balance.
APR
Imagine you're playing your game and you have bad luck where a bunch of bad stuff happens and you can only make minimum payments on your credit card. Why will this make it very difficult for you to win?
Paying only the minimum payments will result in higher amounts of interests being paid.
This type of interest is calculated only on principle.
Simple Interest
Right=Pay off $50
Wrong=$50 deeper into debt
This type of APR is triggered when you fail to make payments on time.
Penalty APR
This occurs when a borrower's payment is not enough to cover the interest, increasing the principal balance.
Negative Amortization
A $200,000 home might actually cost $360,000 over 25 years due to this over time.
accumulated interest
Imagine you land on a space that says "You get a monthly raise of $300 at work." You're already meeting your savings and retirement goals, so why might it be best to increase your monthly payment to your mortgage?
Increasing monthly mortgage payments will lead to a lower amount of interest being paid because the term will be in place for a shorter amount of time.