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Debt
Debt is money that you borrow and have to pay back, usually with interest. Debt can be good if it helps you buy important things like a house or an education, but it can be bad if you borrow too much and struggle to pay it back. Created by Sal Khan.
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- my dad does this so when i go to his house he's like "look at this new vintage video game" and there's like barely any food in the fridge. how do I get him to stop? (or at least, persuade him I suppose)(2 votes)
- This is not your job or your responsibility. You are not your father's parent or probation officer. Please do not make yourself responsible for his childish behavior.(8 votes)
- what happens when you file for bankruptcy(1 vote)
- When you file for bankruptcy, you get to keep certain parts of your assets. The rest are sold to pay back some of your debts, and you start fresh, but you have a hard time getting credit or loans FOR THE REST OF YOUR LIFE.(4 votes)
- What happens when you file for bankruptcy?(1 vote)
- When you file for bankruptcy, some of your debts are cancelled. BUT, your credit rating goes down the toilet, so for the next several years you either cannot borrow, or you have to pay higher interest on any loans that are extended to you.(3 votes)
- Why is debt (negative amount of money) spelled the same as debt (card)?(1 vote)
- It isn't. The card is spelled "debit".(3 votes)
- Does this course covers all the topics of personal finance course?(1 vote)
- The personal finance course came first.
When the financial literacy course was constructed, it used some of the material from the earlier course, but broadened that. So, if you're choosing between the two, choose the Financial Literacy one. It is broader, and new lessons will be added to it sometime in the spring of 2024.(1 vote)
- What happens when you file bankruptcy(1 vote)
- To file bankruptcy, you hire a bankruptcy lawyer, who want's to be paid in advance.
The lawyer will total up the value of everything you own, and the amount of everything you owe.
Your house, furniture, car (but not a fancy one) and a certain amount of savings will be left to you. Almost everything else you own (factory, farm, trading card collection, stocks, bonds, etc.) will be sold, and whatever is received from that will be distributed to the people or banks to which you owe money. The rest of your debts will be cancelled.
BUT, for at least 10 years afterward, nobody will be willing to loan you money unless you pay a VERY HIGH interest rate, and you will miss many opportunities in life.(1 vote)
Video transcript
- So let's talk a little bit about debt. Debt is just the amount
of money that you owe, usually in the form of loans. It could also be your
balance on a credit card, which is really a loan from
the credit card issuer, and I would say there is good
debt and there is bad debt. Good debt is when you borrow money in order to make an
investment of some kind that should produce more money than the amount that you are borrowing and enough money to actually
even offset the interest that you're going to
have to pay on that debt. Examples of things that might be good debt is if you are borrowing
money to, say, buy a house because that will reduce your
rent expense in the future, and the house itself might appreciate. Maybe you need
transportation, you need a car or a motorcycle to get to your job, or you could get to a
better job if you had that. You could work more hours 'cause you're gonna spend
less time getting there. That could be an investment. It could be you're going
to invest in yourself. It could be saying, hey, I could take a course
or I could get a degree. And yes, it's going to cost money that I'm gonna have to pay interest on on top of the money I owe, but it'll increase my
my actual job prospects and my income enough that will
more than offset that money that I have to pay in the future. And even in those three scenarios, three or four scenarios,
be very, very careful. If you're taking on student
debt, really talk to people. Make sure that the degree
program you're getting into, that line of work that
you're getting into, that the folks who decided
to take debt on to do that, that it actually did pay off. If you buy a car, make sure that it's something
that really is an investment and not just something fancy that you wanna show off to your friends, because at some point,
yes, it is transportation, but if you're starting
to buy a very fancy car and you're borrowing money to do it, well, the fanciness of the car isn't going to necessarily
increase your ability to get to work or to get a better job, and then you're essentially
taking on debt for a want as opposed to a need or an investment. Same thing with buying a house. It's not always the right decision. Oftentimes it can be, but really weigh what you
think is going to happen, how much rent you're going to save, how much the house might appreciate, and sometimes they don't,
they go down in value too, relative to how much you owe, and make sure that it's something that you will be able
to pay back over time. Even if some bad things happen
in life, you lose a job, you have to spend money on an emergency in some way, shape, or form. Now on the other hand, there's things that I would
categorize as bad debt, and this is when you are borrowing money for things that, frankly, you do not need. Because when you do that, you're essentially taking money
away from your future self. And if you didn't have
money today to buy it, and if you're gonna have
to pay that money back in the future with
interest, you're taking, you're putting your future self in a more and more difficult situation. So I would say a very
obvious category of this is, let's say there's a big
fancy outfit you wanna buy, one that will not help you get a job. And you're like, well,
I don't have the money, but that looks really
cool, let me buy that. Well, it might feel good now, but you're gonna be paying that down for a very, very, very long time. Or using debt to go eat
at a fancy restaurant. If you're using money that you don't have, once again, it might be fun in the moment, but you're going to be paying that down and taking away from your future self. And it can lead from pretty suboptimal or not so great situations. There are folks that, if
they start doing that, they take money from their future self, they see that their income after they have to pay down the debt and the interest and the payments, month after month their
income starts going lower and lower and lower and lower. That's a scary situation to be in that will create a lot of stress and create a lot of anxiety. If you find yourself in a situation where you're borrowing
to pay off other debt, that can also be a very big red flag, create a lot of stress
and a lot of anxiety. If on things like your credit cards you're just paying the minimum amount but the balances aren't coming down, and you're usually
paying very high interest on those credit cards, that is a very bad situation that is setting you up for
not good financial outcomes. And maybe worse of all, whenever someone falls
into one of these cycles, they might just say, "Well, I just wanna look at
it, it just stresses me out." And then you're not even in a position where you're paying your debt
or you're trying to ignore it, and then that's going to
hit your credit rating, and eventually the collections folks are gonna come after you. And that is a very, very bad situation. Maybe you have to declare bankruptcy at some point in the future. So debt can be useful, but be very, very, very careful with it.