You are a great inspiration to our friend Frank, and his personal finances are really coming together. Unfortunately, Frank is feeling very overwhelmed with his debt situation. He now needs to start paying off his student loan, and he, like all of us, did not realize how much he has charged on his credit cards. He has spread out the bills over his desk, and they do not look pretty.
Thankfully, you are an amazing resource when it comes to personal finance and debt elimination! Let us again help our friend Frank by answering the following questions on credit and debt.
1. Consumer Credit
Frank needs a good understanding of consumer credit.
- Explain to him the concept of consumer credit,
- Explain why it is important to our economy,
- Explain the uses and misuses of credit,
- Explain the advantages and disadvantages of consumer credit.
2. Cosigning a Loan
A friend has asked Frank to cosign a loan for a $10,000 home theater system. Franks wants to help out his friend, but has no idea what cosigning for a loan even means. He is about to put his signature on the dotted line, but has just sent you a text to get your opinion.
- Explain to Frank what it means to cosign for a loan
- What are some things that should Frank consider before he signs his name on the
3. Credit Score
Upon your suggestion, Frank just learned that his credit score is 578, and he does not know if this score is good or not.
- Explain to him what this score means
- Frank would like to earn an excellent credit score—what would that number look like?
- Outline a good strategy for Frank on how he can increase his credit score.
4. Credit Card Billing Error
Frank just received his Visa card statement and noticed that he was charged twice for the same pair of shoes that he recently purchased at the Johnston & Murphy store in the North Park Centre Mall in Dallas. Frank thinks that since this is not his fault, he will just sit back and not make any payments on the card until this mess is cleaned up.
- Is this a good idea?
- Explain to Frank what he should do in the case of a billing error.
5. Debt Snowball
You have been going over Franks’ financials with a fine tooth comb and notice that he as racked up some sizable debts since he graduated college. Here is what you have come up with:
- $5,000 on an AMEX credit card (min. payment $75/mo.)
- $2,700 on a MasterCard (min. payment $30/mo.)
- $750 on a VISA card (min payment $25/mo.)
- $275 on a Dillard’s card (min payment $25/mo.)
- $150 on a Bass Pro Shops account (min payment $20/mo.)
- $6,700 left on his old car (min payment $375/mo.)
- $50 which he owes his ex-girlfriend
- $25 which he owes the secretary at work for lunch
- $42,000 on his student loan (min. payment $200/mo.)
- $1,200 in savings
The good news is that Frank has an excellent income, and he still lives with his parents who want him to succeed in his finances and are not charging him rent. He just received a late graduation gift of $500 from his uncle that he can apply to these debts and he can add an additional $250 on top of the minimum payments of $750 that he is currently paying. Unfortunately, Frank does not know what debts to pay off first, and is stressed-out about his situation.
- Explain to him the concept of a Debt Snowball and how it works
- Explain to him which debts he should pay off first with the $500 gift
- Develop the first sheet of a Debt Snowball to get him on tract to pay off these
A few months have passed, and Frank is making great progress with the debt
snowball that you designed for him. Unfortunately, a coworker suggested that Frank should just declare personal bankruptcy in order wipe his slate clean and everything would be cool.
- Explain to Frank what it means to declare personal bankruptcy
- Explain to Frank the effects of personal bankruptcy on his future
- Explain to Frank the costs of declaring personal bankruptcy
- By the way, can student loans be forgiven in bankruptcy?
7. Purchasing Strategy
Frank, like any typical American, loves to shop and eat out. He had $375 of cash in his pocket on Friday evening, and when Monday morning rolled around, he only had $5 left and almost nothing to show for it—except some wild memories.
• Please help Frank develop a purchasing strategy to help control his impulse spending.
8. Car Purchasing Strategy
In the future, Frank would like to update his car with a newer one (he is determined to pay off his current vehicle first, drive it a few more years, and then make a purchase— smart thinking you gave him).
• Explain to Frank a process for purchasing a motor vehicle. 9. “Upside Down” in a Loan
Upon researching automobiles, Frank realized that almost 85% of credit-financed cars are “Upside Down.”
- Explain to Frank what the term “Upside Down” means is this circumstance.
- Why do you think so many people are in this situation?
- What could Frank do to not be in this situation?
Wow several years have passed by and Frank is completely debt free and has $15,000 in his sa vings account. Y ou ha ve really been an outstanding resource for Frank, and he thanks you profusely. He now has one more question for you to answer!
10. Home Ownership
With his financial house in order, Frank would like to move out of his parent’s home and
purchase is own home. This is a big moment in his life and he is quite nervous about it. To
help Frank out, do the following:
- Explain to Frank both the advantages and disadvantages of home ownership
- List and explain the different types of housing that are available for Frank to choose from.
- List and explain the different types of mortgages that are available for Frank to choose from.
- What type of mortgage would you suggest that he choose?
To receive full credit for this project, you should define and explain each answer in detail. (Utilize
your textbook, (chapters 6-9), the Internet, and the notes that I have provided for you).
• This Project should be a minimum of 1,000 words (not including the repetition of the
question). Each question must be answered for full-credit.
- Number each of your answers and/or provide a brief heading. Please do not copy the questions and paste them in your work. I will simply delete the wording of the question to attain an accurate word count.
- Document should be sent in Microsoft Word Format or PDF file
- Include a title page that includes your name and title of project
- Save your project with your name in the file name.