Credit, Debt, and Financial Literacy

Name: Credit, Debt, and Financial Literacy
Author: Derek Przywalny

Learn about credit utilization and management from the perspective of an individual borrower

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Course: On-Demand

(light music) Welcome to credit, debt and financial literacy. The following lessons will introduce you to credit and various loans that are available. You'll learn about managing debt and the importance of a credit score. You'll also understand credit utilization and management. From the perspective of an individual borrower. Having credit allows you to purchase something before you pay for it. Generally, this credit comes from money that you borrow from a lender. When you obtain credit, you enter into a loan agreement and contractually agree to pay back that loan with interest by a predetermined deadline. At the end of your loan agreement, the credit can be paid back as a lump sum, which means you pay back the entire loan plus interest. A principal balance refers to the amount of money you are originally lent. For some loans, interest is paid periodically and the principle balance is paid at the end of the loan. This can happen when a corporation borrows money by issuing bonds. In this case, the interest would be paid twice a year and the principle balance would be paid back when the loan reaches maturity, which could be as long as 30 years from the time of the original loan. Another common loan is the installment loan, which you pay off periodically until the principal balance and interest are paid off. These are also referred to as amortizing loans. A common example would be a mortgage loan used to buy a house. If it's a fixed interest loan, you would make fixed payments over a certain period. It's important to remember that with amortizing loans, the payments will first be applied to the interest due and anything left will be applied to the principle balance. This means that initially, much of your payment will cover the interest while less will be used to reduce the original amount borrowed. As time goes by, the principal amount will be reduced but your payment and interest rates stay the same. This means that more of your payment will be applied to reduce the principal balance. It's also important to remember that missing monthly payments might result in penalties. It can be helpful to look at your monthly budget to determine what kind of payment you can comfortably afford. Another type of loan is revolving credit loan, which is typical for credit cards. Here, you would get a borrowing limit such as $10,000. You'll face monthly payments where you can pay off the minimum or a larger sum. You could also pay off the entire balance. Remember that choosing the minimum payment option means you'll likely pay off your loan very slowly, while being charged a higher interest rate that often comes with credit cards. With the credit card, you pay off a part of what you borrowed and then borrow again if you don't exceed the maximum amount of credit. Let's say you have a revolving credit on your card of $10,000. If you borrow $2,000 in January, you'll have $8,000 left. If you pay off $1,000 in February, your remaining credit line would be $9,000 and your debt would be $1,000. Your bank might charge you $10 in interest. So you would have a debt of $1,010 and a credit line of $8,990 in March. If you charged your card for $3,000, your debt would go to $4,010 and the remaining credit would be $5,990. During this process, you make payments, get charged interest and borrow again, and the credit revolves. Remember that interest is only charged on the actual amount borrowed, not on the line of credit. Also keep in mind, that some credit card companies may charge you a fee to have your card. When using credit, it's recommended to only borrow what you can afford and to avoid high fees for loan origination and high interest rates.

Beginner Provider : Derek Przywalny 5 Lessons · 16m in Arabic, German, English, Spanish, French, Portuguese, Urdu, Chinese

Course Description

Credit is what allows you to purchase something before you can pay for it. Generally, this credit comes from money that you borrow from a lender. When you obtain credit, you enter into a loan agreementwith a lender and contractually agree to pay back that loan with interest by a predetermined deadline. It’s helpful to understand the importance of good credit management and how you can avoid poor financial decisions that can lead to debt.

In these lessons on Credit, Debt, and Financial Literacy, you’ll learn about credit and the various types of loans available, including credit cards, installment loans, and mortgages. These lessons will discuss managing debt and the important factors that determine your credit score, such as FICO, and how to improve it. You’ll also find out how to manage your debt using different strategies, with the purpose of learning how to use and manage credit responsibly.

What You'll Learn

Understand what causes debt and how to avoid poor financial decisions that lead to it
Identify the different types of available loans, including credit cards, installment loans, and mortgages
Describe the factors that determine your credit score, such as FICO, and how to improve it
Apply different strategies to manage your debt
Understand credit utilization and how to manage credit responsibly

Key Takeaways

Credit allows you to purchase something before you can pay for it, typically using money borrowed from a lender.
Obtaining credit means entering a loan agreement to repay the loan with interest by a predetermined deadline.
Available loan types covered include credit cards, installment loans, and mortgages.
A credit score is influenced by important factors such as FICO, which can be improved.
The course teaches debt management strategies for using and managing credit responsibly.

Frequently Asked Questions

What does this course cover?

It covers credit and the various types of loans available, including credit cards, installment loans, and mortgages, along with managing debt, the factors that determine your credit score such as FICO, and how to improve it.

What will I learn about credit scores?

You will learn the important factors that determine your credit score, such as FICO, and how to improve it.

Does the course teach how to manage debt?

Yes. It discusses managing debt and how to manage your debt using different strategies, with the purpose of learning how to use and manage credit responsibly.

What topics are included in the lessons?

The lessons cover credit and borrowing, debt, credit scores, credit utilization and management, and a Test Your Knowledge section.

What are the main learning objectives?

To understand what causes debt, learn the different types of available loans, and know what influences a credit score.