Personal Finance

Saylor URL: http://www.saylor.org/books Saylor.org

a. How do the three reports vary? Is the information accurate?

b. How can you correct the information? For example,

seehttp://www.equifax.com/answers/correct-credit-report-errors/en_cp.

c. What are your rights regarding your credit reports? Read about your rights

athttp://www.ftc.gov/bcp/menus/consumer/credit/rights.shtm. What does the video on

that site warn you against? You will find a summary of your rights under the Fair Credit

Reporting Act athttp://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre35.pdf. Find out

if your state guarantees other rights or additional protections. Take steps now to correct

your credit reports.

Research online how you can repair your credit history and improve your credit rating. Go

tohttp://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre13.shtm, and

seehttp://www.ehow.com/how_4757_repair-credit-history.html.

[1] Federal Reserve Survey of Consumer Finances, February 2009,
http://www.federalreserve.gov/PUBS/oss/oss2/scfindex.html (accessed February 11,
2009).

[2] Student Monitor annual financial services study, 2008.

7.4 Other People’s Money: An Introduction to Debt

LEARNING OBJECTIVES

1. Define debt and identify its uses.


2. Explain how default risk and interest rate risk determine the cost of debt.


3. Analyze the appropriate uses of debt.

Debt is long-term credit, or the ability to delay payment over several periods. Credit is
used for short-term, recurring expenses, whereas debt is used to finance the purchase of
long-term assets. Credit is a cash management tool used to create security and
convenience, whereas debt is an asset management tool used to create wealth. Debt also
creates risk.

Two most common uses of debt by consumers are car loans and mortgages. They are
discussed much more thoroughly in Chapter 8 "Consumer Strategies" and Chapter 9