Question
Financial Management
The purpose of this week's essay focuses on debt and risk. You will be writing a 2 - 4 page essay with three sections:
Section 1: Identify and analyze your debts - What assets secure your debts? What assets do your debts finance? What is the cost of your debts? What determined those costs? What risks do you undertake by being in debt? How can being in debt help you build wealth?
Section 2: Risk and the 5C's - Are you considered a default risk? How would a lender evaluate you based on "the five C's" of character, capacity, capital, collateral, and conditions? How could you plan to make yourself more attractive to a lender in the future?
Section 3: Review video and comment - Discuss the Tim Clue video on debt. (https://www.youtube.com/watch?v=I5bbvMR8Ee4) What makes this comedy spot funny? What makes it not funny? What does it highlight about the appropriate uses of debt? Write a 2-4 page paper. Use the template provided. Follow APA format, including a title page, introduction, conclusion, citations, and a minimum of one scholarly reference (not Wikipedia or Investopedia). It's a help to turn on the MS Word grammar and spell checker, these will find errors before your professor does, and that can significantly raise your grade.
Expert Solution
Debt is the deferred payment,
an amount of money borrowed from one party from another. Debts arise when
individuals purchase a commodity they cannot afford under normal circumstances.
Many people fall into debt as they strive to acquire basic needs such as
shelter and other luxuries such as car loans. A typical example of debt is
mortgage loans and car loans. There are many causes of debt. Some of them include;
the high costs of living, overuse of credit cards, poor money management, low
income, unexpected expenses, etc. The most common cause of debt is medical
expenses which form the most common cause of bankruptcies. These different
causes of debt may result in a household debt crisis. The debt crises put a
household or individual in a situation where they cannot pay back their debt
and start falling behind on their monthly payments. Many times, these car loans
the borrower secures with assets. These debts are costly and hence need for an
individual or household to adopt various practices to enable them to break out
from the vicious cycle of debt. Some of the techniques include; cutting their
expenses by opting in too low interest-bearing credit cards, increasing their
income through a sale of their assets, finding a second job, declaring
bankruptcy, starting over, etc. These practices play a huge role in debt
management.
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