5.01 Debt and Financial Management

Debt Management

• Avoid debt; use debit cards or pay credit card balances in full monthly.
• Mortgage debt can build equity, acting as a secured loan with collateral.
• Unsecured debt (e.g., credit cards) has higher interest rates due to increased risk for lenders.

Financial Health

• Lenders assess a personal balance sheet (assets vs. liabilities) when you apply for a loan.
• Insolvency (debts exceeding assets) makes loan approval unlikely.

Debt Solutions

• Debt consolidation combines debts for better terms.
• Forbearance is a temporary reprieve from debt collection.
• Foreclosure is when a lender sells collateral to recover a loan balance.

Bankruptcy

• Bankruptcy is a last resort legal process for debt relief.
• It severely impacts credit history for 7-10 years.