Consequences of Poor Financial Management (1)

Consequences of Poor Financial Management (1) 1 Why do people sometimes find it difficult to manage their finances?

They may lack self-discipline or wish to copy friends who are ‘spending it up big’.

2 Use the following words in a sentence to explain their meaning:  Mortgage: I will take out a mortgage for my house.  Mortgagee: The bank became our mortgagee when we took out a mortgage on our new home.  Mortgagors: We became mortgagors when the bank accepted our mortgage.

3 Under what circumstances will the lender have the right to repossess goods bought on credit? If you fail to make the repayments which you owe them. 4 What happens when a person has his or her wages garnisheed?

The lender has applied to get a legal order so that a certain amount of money can be taken out of a borrower’s wages, the money being deducted until the debt is fully paid off.

5 What type of credit card is best suited to the following type of users: (a) revolver

A credit card with a low interest rate.

(b) transactor?

A credit card with a lengthy interest free period (e.g. 55 days)

6 A friend has many different loans and is in financial difficulty. Why would you advise her to consolidate her loans? I would advise her to consolidate her loans so that she is out of the mess of having to repay credit with high interest rates, and all repayments are going into paying one loan.

7 Do you think it is fair for the lender to have the right to repossess goods or garnishee wages? Why? Share your answer with the rest of the class.

I believe it is fair that a lender has the right to repossess goods or garnishee wages. The reason being that they cannot afford a borrower to be continually behind on repayments as they may require the money urgently.

8 What advice would you give to someone who is thinking of applying for a credit card?

I would advise them to plan their purchases and budget their money so they keep track of their finances.

9 ‘Unwise consumers, and not the easy access to credit, are to blame for debt problems.’ Give reasons why you agree or disagree with this statement.

I agree with this statement, whether it is easy or hard for an individual to gain access to credit, their debt will be shown by the way in which they use it. If a person can easily gain credit but budget the money, then they will avoid most debt problems, if they are a big spender though, then they will incur the penalties.

11 Use the Coles Group Card weblink in your eBookPLUS and find the following information: (a) the interest rates on the card and how they vary The Coles Group Mastercard has an interest rate of 0% on balance transfers and up to 62 days interest free on purchase, but terms and conditions do apply. There is an interest rate of 20.24% on purchases.

(b) card benefits

The card offers regular savings on fuel, no annual fee, and special shopping offers and earns more FlyBuys points.

(c) how repayments are made and the minimum repayment.

The minimum repayment is calculated by the company and repayments are generally made monthly.

Consequences of Poor Financial Management (2)

1 What is the difference between a debtor and a creditor ? A debtor is the person is the person who owes the money, while a creditor is the person whom is owed the money.

2 Define the term ‘bankrupt’.

Bankrupt means that your goods are sold back to creditors so you can receive some of their money back, the court also takes control of your future spending.

3 (a) What is a default notice?

It is a document from a lender stating that you have failed to carry out the terms of your contract.

(b) What should you do if you receive a default notice?

At first you must seek legal advice, but from there you have a number of options available to you:

1. Pay the amount owing 2. Negotiate a change in your repayments 3. Apply for a hardship variation 4. Negotiate a postponement of repossession 5. Refinance the loan 6. Sell your good to repay the loan 7. Voluntary surrender 8. Apply for bankruptcy

4 What is the first thing a person should do if she or he is unable to make a repayment on time?

You should contact the lender as soon as possible and explain your current situation. 5 Which one of the eight options (on page 56) would you select if you were unable to repay your loan? Give reasons for your selection.

I would attempt to re-negotiate the conditions of the loan as it would allow me to have more time to re-pay the loan or pay less with each instalment; this is because I would still intend to pay off the entire loan.

6 Outline the role of a credit bureau.

A credit bureau is an organization which keeps a file on the credit records of consumers. The records are supplied by the businesses that provide credit. The bureau provides information to the business instead of them having to perform regular credit checks.

Prepare a flow chart on ‘Dealing with debt’.