BUSN 235- Week 3 Assignment

Assignment Instructions:

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. 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. Also, always read over your work and listen for incomplete, confusing, or problem sentences.

Financial Management

Have you ever wondered why so many people from all over the world find themselves in so much debt? Well, for me, I never could have imagined at this stage in my life that I could establish a great deal of debt. Ever since turning eighteen and joining the Army shortly after, I dreamt of starting a family and being very well established one day. At the age of twenty-one, I married and eventually purchased my first home, a significant asset. Having a house loan is very important, and the bank uses it as collateral, but once the loan is paid off, it will be no longer used as collateral.

Having a lot of assets nowadays is nothing new, and it will continue to be a solution to many problems, good or bad. I use many assets for personal reasons, such as trips, vacations, and unexpected car expenses (repairs). For example, this past Christmas was great with the family; however, doing something spontaneous was much needed. I decided to book a flight to Las Vegas and book a lovely hotel suite for the family and me. Sometimes in life, you must reward yourself, and by doing so, it’s better to do so by financing them.

Debt can be a gift or a curse, but I would think most people would say a curse. The cost of my debt is probably the average of most people from all over have. Having credit cards and the monthly payment can be challenging, especially if you miss a price, and on top of that, the interest rate is usually around 24.99%. Having late fees can be the last straw for most people to include me, and my monthly debt cost is about $280. For me, I think the overall

Financial Management

determination for the cost is the interest rate, and it’s no way around it, so paying it off early will be critical.

Being in debt can cause a lot of risks, whether it is small or large, and quite frankly, it doesn’t get better with time. For me, being in debt has caused many health-related problems such as depression, anxiety, and many different types of health issues. Trying to get through debt in a day is impossible, and I firmly believe you must have patience, or else you can find yourself in a depressed state. Another risk of having debt can result in your credit score going into a decline; missing any payments on credits cards or a loan can do just that. It is strongly encouraged not to forget any charges.

Most people think having debt is all bad, but in some cases, you can turn the negative into a positive in building wealth by having debt. Having all your debt consolidation can help you become wealthy by having just one interest rate for all your debt combined. Using this method can save you an abundance of money over time and can your finances positively. Another way to build wealth from debt has better cash flow management to minimize debt. For instinct, “by increasing frequency of payment on a mortgage, increasing the amount paid, paying your entire salary into an offset account.”

I don’t believe that I am a high risk based on my overall character, which speaks for itself. Being in the Army with a steady income is key in which we get pay raises every year and additional incentive pay. Being a homeowner has collateral, and capital is also a significant asset that lenders love to see. The

Financial Management

essential things lenders love to see are your assets and financial stability in your monthly payments without missing one and paying on time without delay. I think any lender I would ever need in the future would be very attractive on my behalf.

The Tim Clue video talks about being in debt with some companies and doesn’t care about his accumulated debt. The video is spot-on funny in how he delivers his message to the audience, and it’s not funny as if he cannot pay off the debt. The highlight of the video is that if you borrow money from a friend or a lender, ensure you are using the money in the right way and not wasting it by any means. Most importantly, pay off your debt!

References

Sikar, M. (2014). 7 powerful ways to use 'Good Debt' to create wealth. Retrieved from Linkedin: https://www.linkedin.com/pulse/20140901221634-123512066-7-powerful-ways-to-use-good-debt-to-create-wealth/