1. Chapter 4 section 1: Going into debt Credit: receipt of money either directly or indirectly used to buy goods and services in the present with the promise to pay for in the future. Principal: amount of money originally borrowed in a loan. Interest: amount of money the borrower must pay for the use of someone else's money. Installment debt: type of loan repaid with equal payments, or installments over a specific period of time. Durable goods: manufactured items that have a life span longer than three years. Why is the length of the installment period important? It determines size of the monthly payment and the total amount of interest that must be paid.

2. Why people use credit: 1. People would rather buy on credit and enjoy the use of the item now. 2. Allows them to spread the payments over the life of the item being purchased. 3. Earn bonus points toward other goods, airline miles or money back. Mortgages: Fixed-rate: interest rate and monthly payments remain the same over the term of the mortgage- usually 15 to 30 years. Flexible rate: interest rate and monthly payments float up or down along with the interest rates in general. No limit on how much the rate decreases, but can only increase a few percentage points. Graduated payment: interest rate fixed, but monthly payments start off small and gradually increases over the years.

3. Credit Cards Charge accounts: credit extended to a consumer allowing the consumer to buy goods or services from a particular company and pay for them later. Revolving charge account: an account that allows you to make minimum payments toward an item that you purchased until you pay it off plus interest. Credit rating: rating of the risk involved in lending money to a specific person or business. Based on: 1.Capacity: related to income, debt and length of employment. 2. Character: reputation as a reliable and trustworthy person and educational background. 3. Collateral: size of your capital or personal wealth. Ability to pay off a loan. 4. Creditworthiness: capacity, character and collateral.

5. Secured loan: loan that is backed up by collateral. Unsecured loan: loan guaranteed only by a promise to repay it. Cosigner: person who signs a contract along with the borrower and promises to repay the loan if the borrower does not. Responsibilities of a borrower: 1. Collection agency tries to get the money from you. 2. Bad credit history- difficulty getting future loans. 3. Keep record of charges-notify if lost/stolen. 4. Concentrate on paying high-interest credit cards first; pay more than the minimum or it could take years.

6. Bankruptcy: the inability to pay debts based on the income received. Problems it creates: 1. Remains on your record for 10 years. 2. Difficult to reestablish credit and/or borrow funds. 3. You are making sure creditors are never paid off ( at least not in full) raising the cost for everyone else.