From the course: Recovering from a Financial Setback
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Understanding debt
- Today, most people have some sort of debt, but not all debt is created equal. When you're faced with financial challenges, it's important to be able to classify your debt into good versus bad, because it will help you form a plan on how to move forward. First of all, a few key concepts to understand about debt. Principal, principal is the amount you borrowed. If you've taken out a $10,000 car loan, that 10,000 is the principal you owe. Term, the term is expressed in time, and it's the amount of time within which you have to pay back the loan. Car loans, for example, used to be five years or less, but some are creeping up to eight years or more now. Interest rates, interest rates are expressed as a percentage. It's the amount as a percentage of the outstanding loan that your lender charges per year for you to borrow their money. Also known as annual percentage rate, which is the APR, or annual percentage yield, APY. A…
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