Credit _ Debt - Debt and credit

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					DEBT AND CREDIT
What is debt?
   The total amount of money you owe someone else.
     Banks

     Person

     Business

     Government

     IRS

     Collection   Agencies
What are loans?
   A sum of money borrowed for a specific purpose
    under specific terms.
   Specific Purpose
     Buying a car, house, boat, etc
     Education

     Make bills

   Specific Terms
     Time  frame
     Interest Charged
What is credit?
   Depends on context
   Can mean loan, qualifications, income, refund, etc.
   For our purposes: Your personal or corporate ability
    to obtain loans.
   Your “credit” is simply a measurement of risk
What is the purpose of debt/credit?

   My favorite word in finance:
                         LEVERAGE
   To utilize more capital than you physically have in
    reserves.
   What is the benefit of using leverage?
   What are the pitfalls of using leverage?
Who uses credit/debt? How? Why?

   Government
   Businesses
   Banks
   You
Who gets to use leverage?
   Well, that depends upon the risk
   Lending money is simply a gamble on the risk the
    lender is willing to take on the lendee paying the
    loan back.
   If you are a good credit risk lenders will give you
    vast amounts of “money” at a reasonable rate of
    interest.
   If you are a bad credit risk lenders may still give
    you some money, but if they do, it will be at a much
    higher price.
How are credit risks measured?
   Responsible lenders will look at your:
     Income

     Assets

     DTI– Debt to Income Ratio
     Credit Score

     Public Records
       Bankruptcies
       Judgments
       Foreclosures
Recap Questions
   Debt vs Loans
   What is credit?
   Who uses credit and why?
   How do lenders determine who to loan money to?
   What are the lenders qualifications?

				
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posted:1/12/2011
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