Credit Card Knowledge

Which best describes how a credit card works?

• The credit card company extends you a line of credit. You purchase "stuff" and then have the choice to pay the balance in full or a minimum payment each month.

• The credit card company extends you a line of credit. This is free money that you can use to purchase the "stuff" that you need.

• The credit card company extends you a line of credit. You then pay a small percentage of the cost of those purchases in one annual payment.

• The credit card company extends you a line of credit. You purchase "stuff" and the purchase gets directly paid with funds in your checking account.

What is the advantage of paying your credit card balance in full each month?

• You avoid paying any interest and fees.

• You pay only a small amount of interest.

• You have less of your credit limit available, therefore, less temptation to spend.

• You will incur only a small "paid in full" fee on your next credit card statement.

What is an outstanding balance?

• The amount you still owe after you have made your most recent payment

• The amount you still have in your line of credit

• The amount you paid in your minimum payment

• The amount you spent in total

Why is it more difficult to get out of debt when only paying the minimum payment?

• The majority of your minimum payment is going toward interest and finance charges and only a small amount toward the principal.

• Your credit limit always resets, so you have a lot of spending power each month.

• Your entire minimum payment goes toward principal and the interest continues to compound.

The video advises you to "be a deadbeat". What does that mean?

• Pay your credit card bill in full and on time every single month, thus paying no interest or fees.

• Never open a line of credit so the credit card companies do not make any money.

• Make the minimum payment on your credit card on time each month.

What is net worth?

• Your income

• The total sum of your assets

• The balance in your bank account(s)

• What you own minus what you owe

What specific things could Jeremy (from the video) do to improve his financial situation? (choose all correct answers)

• Pay down his student loans and car loans

• Increase his line of credit

• Save more money each month

• Increase his house value through home improvement projects

How does debt impact a person's net worth?

• Debt increases a person's net worth because it increases their liabilities.

• Debt reduces a person's net worth because it decreases their liabilities.

• Debt increases a person's net worth because it decreases their liabilities.

• Debt reduces a person's net worth because it increases their liabilities.

Which of the following is NOT a reason to track your net worth regularly?

• To see if your financial situation is headed in the right direction

• To see where you need to tweak things to increase your net worth

• To avoid overspending in any areas

• To see if you can avoid a positive net worth

What happens when you use your debit card?

• You are borrowing money from your bank to make a purchase.

• You pull money directly from your checking account.

• You are buying an item/service now with the promise to pay later.

• You pull money directly from your savings account.