How_Money_Works_-_The_Facts_Visually_Explained

(Greg DeLong) #1

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PERSONAL FINANCE

Debt

INTEREST AND
BANKRUPTCY

Interest
This is the cost paid to borrow money.
It is expressed as a percentage of the
capital borrowed. Various debt
products have different interest rates.
The rate might be fixed for a set period
of time or “variable,” meaning it can
change. It is important for individuals
to take interest costs into account
when borrowing to invest.
Bankruptcy
This is a legal process that releases a
person (or company) from almost all
of their debts. People (and companies)
can declare bankruptcy if they do not
have a realistic chance of repaying
their debts depending on the type of
bankruptcy filed. Although it can offer
a fresh start, the financial consequence
can be that it adversely affects a
person’s credit rating, and therefore
their ability to borrow in the future.

$55,000 $55,000

$55,000 $55,000

$55,000 $55,000

$55,000 $55,000 $55,000 $55,000

$55,000

E-T YPE E-T YPE

E-T YPE E-T YPE

E-T YPE E-T YPE

E-T YPE E-T YPE E-T YPE E-T YPE

E-T YPE

Buyer A
Sells E-type Jaguar
for $55,000, making
profit of $5,000

Buyer B
makes
a gross
profit of
$50,000

One year later

One year later

$5,000

$50,000

A

B


CARS INCREASE IN VALUE
Buyer B makes a larger profit as the
gains are multiplied when selling the
cars at a profit of $5,000 each. His
gross profit is $50,000; net profit can
be calculated by deducting interest
payments. However, there is also
the possibility of losing money.

$ 729


billion


credit card


debt owed by


US consumers


US_206-207_Why_we_use_debt.indd 207 07/11/2016 11:22

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