Professor Durkin
Continuing Case Part II:
Pages 280- 283
Created By: Kyle Verrette
Summary:
Cory and Tisha requested another meeting with me. They are
major purchases. Cory and Tisha currently have several major credit
several tempting credit card offers in the mail, even though they have
several credit cards already. They have a total credit card balance of
$1,300. The minimum monthly payment for each of these credit cards
average $50. However, they usually pay $100 each month on their
Cory and Tisha are anxious about moving out of their apartment
and purchasing their first home. They are currently not on the same
interested in getting a new car that has fewer miles. This is because
their current car is older and has high mileage. Even though they are
anxious about purchasing a new car and home they are limited on
funds. They have several options available to them, which will reduce
their expenses. Cory and Tisha are able to reduce their monthly credit
this does not count for the increase in their insurance premium if they
unions have lower fees, lower rates on loans, and they have higher
convenience factor. Many credit unions are not located around the
country. For this reason, they have limited ATMs. The convenience
credit unions are unable to. Commercial banks are able to offer
more ATM locations and they are also able to access their account
mobile app and online website I would indeed have them consider
check their transaction history. They are able to see their balances,
see if a check cleared, and transfer funds at any time. They are able
to access online banking 24/7 the bank does not have to be open to
is that the Dumonts are able to apply for an IRA and loans at the
that they keep all of their passwords secure, so that no one is able
associated with them. Having an online bank means that there are
rates. This is because the fixed costs are lower than regular
commercial banks. One disadvantage of online banks is that the
based online, they would not be able to go into the bank and ask
them questions about their account. They would also not be allowed
When looking for a new bank the Dumonts should consider the
The Dumonts should find a bank that has low monthly fees and low
required minimum balance. These fees are associated with the first
shopping for bank. This is because the Dumonts need to see how
many locations the banks offer, the hours, and the different services
each bank offers. The third C that the Dumonts should consider
withdraw money from their CD. So, in order to avoid fees and be
able to access money then they should put money aside into a
savings account.
writing privileges, relatively safe, liquid, and limited risk due to short
with the asset management account. The account is also not FDIC
bracket. The Dumonts are looking into an account that will provide
them with the highest interest rate. The savings account has a 1
percent interest rate. The Dumonts need to be able to find the after
need to take the interest and then subtract the marginal tax of 15%.
option would be the state tax-free money market fund with a tax
yield of .25%. Even though this option is tax-free it does not offer
the Dumonts the best interest. The best option is the .85%
would be decreased due to state tax it would still earn more interest
than the state free money market fund. So, ultimately the best
higher return.
Tisha likes the idea about being able to save money. She was
recommended that she should use the pay yourself first option.
This option will allow her to save money and distribute her payroll
check into various accounts. All Tisha has to do is get the account
number and routing number for each account that she was to
accounts will allow her to earn interest. Another option is that Tisha
could purchase savings bonds and allow them to mature and earn
interest over time. One last option that Tisha could consider is by
would then allow her to save for a family vacation. Even if Tisha
deposits $10- 20 each pay cycle into each a savings account it will
allow her to start earning interest and get in the habit of saving
money. It will take time to be able to save a substantial amount of
protect him from fraud and possible identity theft. The Dumonts
I would also suggest that the Dumonts check their credit reports.
they ensure there are no red flags. They need to ensure that all
They should store all of their documents in a locked firebox. This will
calculated their debt limit ratio and see if it is financially smart for
there debt ratio before the car I took their monthly debt and divided
car the Dumonts have a 15% debt ratio. Which is good because
they want to be around the 15-18% rang. However, they should try
deb ratio with them purchasing a second car. I took their monthly
debt and added the $300 for their new monthly payment of the car
second car. 20% is a little high they should try to stay around the
mortgage payment.
9. Concerned that they might depend on credit too much, Tisha and
Cory have asked you about the typical warning signs of excessive
credit use. List five to eight of those signs. What alternatives
should they consider if they occasionally cant pay their bills on
time?
The Dumonts are worried about their credit score and are
credit, and having their credit limits on their credit cards nearly
maxed out. However, there are several ways that the Dumonts are
able to improve their credit score and decrease their debt. They are
budget then they are able to identify key areas were they are able
to cut expenses. Other ways that the Dumonts can improve their
due. If the Dumonts stop using their credit cards and stop applying
for more credit then this will also allow them to improve their score
10. Tisha and Cory are worried that their credit card company
might increase their credit card interest rate so much that they
will not be able to afford their monthly payments. Explain their
rights under the CARD Act of 2009.
Tisha and Cory are concerned about not being able to afford their
card. However, under the CARD Act of 2009 their credit company is
their interest rate. This grace period will allow the Dumonts to shop
around for other credit card companies that offer a lower interest
provide each cards interest rate, benefits, and annual fee, and other
each credit and see what one is the best option for them.
become familiar with their credit rating. If their credit score is low
then they know, that they have work to do to increase their score.
Having a low credit score would be a major red flag. This is because
they will receive a higher interest rate from lenders if they apply for
Dumonts with their credit score. The report will also allow them to
highlight any errors. Errors on their credit report can consist of any
open bank accounts that have been closed and unresolved loans. If
there are any errors on the report then they need to contact the
12. What are the five Cs of credit? Define and explain each,
based on the information provided about the Dumont household.
able to identify whether they pay their monthly bills on time. If they
age. The third C, Capital refers to the size of their financial holdings.
that they have attached to their loans. The assets act as a security
blanket for the lenders. If the Dumonts apply collateral to their loan
then they will receive a lower interest rate. This is because they
identifies whether the Dumonts are able to repay their debt, due to
then lenders would be more skeptical and may reconsider giving the
13. Cory and Tisha are convinced that good debt means
cheap debt. Help them identify one or two sources of credit
that would be categorized as inexpensive, more expensive, or
most expensive. Where would payday loans fit? Why?
The Dumonts are convinced that Good debt means cheap debt,
but this is not the right meaning. An example of good debt could
this could benefit their credit score. There are several didnt sources
family member for a loan will allow the Dumonts to pay little to no
member for a loan. If the Dumonts are late or miss a payment then
the lender more security. The loan will also be cheaper because the
lender will give the Dumonts a cheaper interest rate. The Dumonts
have also been considering a payday loan. However, the Dumonts
should stay away from payday loans because they have a high
interest rate. Along with a high interest rate there are also many
fees attached to the loan. A payday loan would be a bad option for
the Dumonts. This type of loan is usually for individuals with bad
credit.
These alternatives are not helpful for the Dumonts. The Dumonts
should consider staying away from both TV ads and word of mouth
from friends and family. This is because word of mouth from friends
financial situation may not be the same as their friends. This means
that they may not be eligible for the same type of benefits or loans.
will help the Dumonts establish a budget, which will allow the
expert the Dumonts could also talk with them about debt
15. Help Cory and Tisha apply the four steps of the smart
buying process to decide whether or not to replace their car.
What sources of consumer information might be useful to them?
It is crucial that Cory and Tisha apply the four step smart buying
must have list vs. a wish list. This will help narrow down the
Dumonts get the best price. After the Dumonts do their homework
and they believe they are getting a good deal, then they should
the Dumonts may need to qualify for in order to have the option for
would be eligible to get a new car every few years. There would be
that the Dumonts would have a set number of miles and if they go
over their miles then the Dumonts will have to pay the difference.
the Dumonts have several kids this may not be the best option.
This is because children may cause some wear and tear on the
vehicle. They may spill a drink in the car, rip the seats, or even
scratch the paint. The Dumonts would liable to cover all damages.
The car dealership may not even allow the Dumonts to return the
decide on a closed- end or open- end lease. A closed- end lease has
no financial obligation at the end of the lease. They are able to walk
away after the lease ends. The Dumonts just need to ensure that
they stay within the mileage requirements and keep the car in good
condition. A close- end lease allows for normal wear and tear. It
does not allow for scratched paint, ripped seats, or drink/ food
dealership and understand what the exact stipulations are for wear
and tear. There are also various fees associated with leasing a
vehicle. The Dumonts would have to pay for registration, tag fees,
and for a down payment. Another option is for an open- end lease,
business will also have the option to purchase the vehicle at the end
of the lease. However, this option does not allow the Dumonts to
walk away from the lease. The Dumonts will have to pay for the
There are several factors that Cory and Tisha need to consider when
purchasing a new car. They need to be able to see how much they
can afford. Once they are able to determine how much they can
afford then they need talk and see what they would consider paying
the car will immediately loose value once it leaves the dealerships
lot. However, with a new car there is a warranty. The warranty will
associated with a new car. Also one last factor that the Dumonts
need to consider is that many lenders will give them a lower interest
also not receive a low interest rate if they purchase a used car.
Cory and Tisha are also considering trading in their current car or
selling it. If the Dumonts do not believe that they will receive a
hassle or risk. There is a risk factor associated with selling the car.
The individual purchasing the car could give the Dumonts a
vehicle. If the Dumonts do not need the car for a down payment
then they could save the car and sell it when they are ready. If they
sell the car they might also get more money for the car then if they
traded it in.
18. Cory and Tisha found a used car that costs $12,000. They
can finance through their bank for 5.75 percent interest for a
maximum of 48 months. The rate for new car financing is 4.50
percent for 60 months or 4.35 percent for 48 months. If they
could find a comparably priced new vehicle, how much would
they save per month in interest charges if they financed the
vehicle for 48 months?
Cory and Tisha are considering purchasing a car. They found a used
car that costs $12,000. They are seeking assistance to gain further
purchasing a new car for 60 months with a 4.5% interest rate, then
monthly saving I took the monthly payment for the used car of
$280.45. Then I took the monthly payment for the 48-month loan of
272.83= 7.61). So, the Dumonts would save $7.61 in interest per
month. Once I figure out how much they would save each month I
multiplied the 7.61 by 48. The Dumonts would save $365.51 over
they would save in interest if they chose the 36-month loan over the
5.75% interest rating over 36 months they would save $368.06 over
the life of the loan. If they were to finance a 36-month loan then
if they chose to stay with the 48- month loan, then they would be
but they would also save a total of $368.06 in interest over the life
home. The Dumonts are also wondering what default means. The
occurs if the Dumonts defaulted on their loan. The lenders will then
claim any assets in order to help recover the debt of the loan. For
lenders would then take the car to an auction and use the money
they got from the car and apply it towards their defaulted loan.
Dumonts default on their secured loan, not only can the lenders
repossess whatever is secured, but also, if the sale of the asset does
not cover what is owed, then the Dumonts will still be responsible
for the balance of the loan. The Dumonts could consider several
could consider is to sell the asset and use that money to repay the
loan. The Dumonts could also contact the lender and talk with them
financial situation.
order to purchase a car and help their children pay for college. The
advantages with a home equity loan. Home equity loans are more
secure than regular consumer loans. Since the loans are secure the
interest rate associated with the loan is also lower. This is because
lenders consider them less risky. Even though there are many
careful because if they are not financial responsible then they could
They will use the amount they get for auction and pay off the
remaining balance on the car loan as well as the college loan. Once
they reach the final stage of the life cycle they will be close to
then. There are also several fees associated with the home equity
loan that they need to consider as well. If the Dumonts are financial
money with a lower interest rate associated with the home equity
loan. There are several tax consequences that the Dumonts should
interests the Dumonts pay on their home equity loan, their income
is lowered by $1.
loans total amount, time, and interest rate I was able to find the
and the length of the loan. If the Dumonts only have a 15-year loan
time.
payment to pay.
The 1-year ARM would not be a viable option for the Dumonts. They
currently have a strict budget. With a one year arm the interest rate
is able to fluctuate and with any change in the interest rate it could
The third option that the Dumonts can consider is the interest only
loan. Lenders offer low interest rates and the monthly payment is
interest from the loan. This could potentially cause the Dumonts to
also pay $911 in loan payments per month. They are also expecting
was also able to calculate the total mortgage and monthly payment
a 30-year, fixed rate mortgage. The monthly payment for the 30-
creditworthiness during his loan process. Many lenders may use the
lenders look to see if Cory has more than 36 percent of his income
mortgages, credit card debt, and personal loans. Cory still has
debt to lenders. So, his student loans will not affect his
because once I add $196 to his current PITI then the amount will be
The Dumonts have two options that they are able to choose from.
They can choose either the loan that is offered from the 28 percent
currently pay $1300 in rent and renter insurance per month. If they
choose this option it would be an extra $490 a month for the loan
itself. This does not include the homeowners insurance of $170 per
month. This option would not be financially smart for the Dumonts
$301,424 then they would have to put $60,284.80 for a total down
their new home purchase. In order to calculate the total closing cost
what they have to pay towards the closing costs. The total amount
closing. They currently have $13,000 in savings that they are able
how much they would be paying in interest if they do not pay off
to calculate the total costs of the mortgage. I was able to find the
then took the total costs and subtracted the loan amount. The total
costs are 518,040 and subtracted 301,424, which then gives me the
the 30-year loan. If the Dumonts pay off their loan early then the
interest.
15- year mortgage because their house would be paid off before
the Dumonts would be able to pay off the loan faster and they
offers lower interest and taxes. The Dumonts would only have to
This is because they could save money in interest and their home
time costs include down payment and closing costs. The Dumonts
also need to consider several recurring costs. Recurring costs would
include PITI costs. PITI costs are principal, interest, taxes, and
could also ask the sellers of the home to replace old/ broken
Recommendations:
Establishing a budget will also allow the Dumonts to know how much
they are currently spending in debt per month. A budget would also
would also allow them to transfer funds when needed and see whether
getting a part time job. Having a second job will be another source of
income, which would allow them to have a safety cushion if they are
short one month. The extra source of income could also allow the
would cost more per month to get a 36-month loan the extra source of
would allow the Dumonts to $368.06 over the life of the loan in
budget and pay their monthly loan payment then a home equity loan