2in1-madayag.docx

Nicah Shayne B. Madayag

REFLECT: The Credit Card and Mortgage Schemes and Scams; DETERMINE: Ways of living within your means

The central message of all the videos is that people are being fooled that by using credit card they will not immediately pay their debt because of the thinking that they buy now and pay it later. That is also the case in mortgage loan, home buyers are attracted to the thinking that they can have a house just by entering into an agreement with the lender (bank) wherein the borrower receives cash upfront, then makes payments over a set time span. Which they didn’t know that this things will put them to a greater risk especially If they budget are not within their means. Credit cards, loans, savings, and even emergency funds allow you to buy more things than your income would allow. It gives you a fantasy that you can own things or house right now and pay for it later. But , some of this people are not aware that kind of lifestyle isn’t sustainable and, at some point, (because of the thinking that they will pay for it later) your reckless spending will catch up to you. Your savings and access to credit will run out and when that happens and you will be forced to make some important changes or face financial ruin. When people are spending, using credit cards or when they used the money from the mortgage loan, people are encourage to spend money that they don’t have which leads them to overspend. People are fooled by believing that they will not pay their debt now but pay later, which leads them at a greater risk. The reason is although, it looks like they have free money or didn’t spend anything at that time,in reality is that they will need to pay that in a certain month or period (which depends on their agreement) that if they fail to pay at that time, there will be consequences. In a credit card, when credit card holder tends to overspend their credit limit or when they fail to pay at point of payment (base on their agreement) there are risks that they will encounter. One of them is that, they will end up paying not only the purchase price but also the interest charge on that item. In other words, if they carry a balance, all of their purchases will end up them costing a little more. The interest rate is not the only risk, Aside from paying interest charges, they will also pay fees if they are not paying on time or they are paying their monthly payment no on time. Aside from that they will

also pay for penalty because of exceeding their credit card limit. This

disadvantages in using credit cards leads in to what we call credit card debt. Credit card debt happens when the credit card holder exceeds his/her credit card limit. Some are not aware of this fact that credit card is a form of borrowing (you buy now and pay later) which maybe one of the reason to lead them to overspending. And because it is a form of borrowing,the credit card holder has an obligation, in case he/she fail to pay his or her credit card payment or known as credit card default. When credit card debt happens, the credit card holder (borrower) has an obligation to the bank or the credit company to pay it back or to return their debt. Credit card companies/banks want you to return the money you borrowed to from them by paying monthly minimum payment with an interest and penalty charge. With this knowledge, (In my opinion), people should should think that

Nicah Shayne B. Madayag

REFLECT: The Credit Card and Mortgage Schemes and Scams; DETERMINE: Ways of living within your means credit card isn’t free money. They need to think that credit card is a short-term borrowing facility. Credit card holder should not also based their decisions on emotions by spending things they know that they can’t afford by thinking that they can pay this thing or debt later on. This kind of thinking will only lead them to overspend or live beyond their means. They should purchase things that they can afford. And to protect them to future debts or credit reputations, Credit card holders should pay their credit card payments on time and if they can do it, they should pay more than the monthly minimum payment. The other videos is about mortgage loan entered by home buyers without enough cash on hand to purchase a home. Because of the lack of money, people go to bank or mortgage brokers to borrow money. This kind of loan is known as mortgage which is a debt instrument, secured by the collateral of specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments. Some people are tempted to enter into a mortgage loan because of the thinking that they can have house and pay for it later, which others are not aware, that there are disadvantages when entering into a mortgage loan agreement. They didn’t know that this s loan gives an complete disadvantage to a borrower because in case of default, the bank will claim on the house. With this kind of nature in a mortgage loan that when the homebuyer default on paying the mortgage, (the house will be repossessed by the bank and they will sell it to third parties to recover their money), some lenders take advantage of this kind of things. They usually take advantage to buyers with people who are less educated, with low income and poor credit. This activities are known as predatory lending activities. The term predatory lending that is famous or associated with the mortgage crisis that occur in 2008. Predatory lending ignores or hinders the borrower’s ability to repay the debt which benefits the lender. This lending tactics often try to take advantage of a borrower’s lack of understanding about loans, terms or finances. Predatory lenders abuse the borrowers by charging very high interest rates to high-risk borrowers who are most likely to default.The lenders also encourages the borrower to refinance an existing loan into a larger one with a higher interest rate and additional fees. Not only that, they also hide or misrepresents the true costs, risks and/or appropriateness of a loan’s terms, or the lender changes the loan terms after the initial offer. It also includes loan packing, loan flipping, asset-based lending and reverse redlining. This are practices that makes borrowers up for failure. This practices, either individually, creates a cycle of debt that causes severe financial hardship on families and individuals. And because of this fraudulent activities, home buyers or borrowers should be careful in entering to a mortgage loan. They should assessed first their capabilities if they can pay that certain loan throughout the years. Because if they fail to pay this mortgage loans, they will be in a higher disadvantage. Their efforts, money will be put into nothing, because their house will be repossess by that lender/ bank/ lending entity. Aside from that home buyers should be aware of the

Nicah Shayne B. Madayag

REFLECT: The Credit Card and Mortgage Schemes and Scams; DETERMINE: Ways of living within your means tactics of the predatory lenders. They should know first if that lender is licensed to lend money. The borrower should also be conscious if the lender is making an offer that seems to good to be true. Consumers should go into the loan transaction with their eyes open and an understanding of what will happen when things go wrong. For example is, when a lender does not assess how you’ve handled debt in the past or the potential impact of taking on more debt or when a lender still offers you a loan despite of your credit reputation. Home buyers should protect themselves with this lenders because if not, they will be on a high risk. Borrowers should read the documents carefully and should not sign any documents that have blank spaces. The reason is , the lender might fill them in later, entering a rate or term you didn’t approve. Home buyers should not be fall/ be fooled by believing that lower interest rates will make them pay much lesser. The reason is, this lower interest rates are just allurement to attract clients or customers. Also lower interest rates are mostly given to people who have higher incomes. The lenders or the banks usually depend the amount of rates base on the buyer’s needs or capabilities. To protect yourselves to this kind of thinking, you should not always think that lower interest rates will makes you to pay less. Because of this disadvantages in credit card and mortgage loans, the philippines established a law to give us some chances to pay when we make defaults in paying our loans or on giving us some knowledge to this kind of things. . This laws are the maceda law and real mortgage law which are applicable for mortgage loan. As for the credit card is the Credit Information System Act. People are either living within or beyond their means. A person who live within their means are those ones that spend on things within in their budget or within their income or capabilities. This are people who manage their finances well. They have control when it comes to spending. They don’t overspend on things that are nit needed. They spend on things that are needed rather than what is wanted. They are people who are contented to what they have. This are kind of people who are not in a “financial stress”, they are free of debt. Living within in your means is important for all us because we can live in a life free of debt. The reason is when we learn on living within our means or income it helps us to avoid debt and allows us to have additional resources with those things that we need. When we know on how to budget we can allow ourselves to track our expenses with those things that we need rather on what we wanted. As a student without a source of income, I will live within my capabilities or budget. As as student without a stable job, I will spend on things that are needed rather than what I wanted. And to able to budget my weekly allowance, I will make a budget plan for me track my own expenses. Aside from that, I will be living my life with contentment. I will not let myself to be envy with other people. I will not let myself be affected with the trend now in our generation especially now that social media like instagram, facebook make it easier for us to be discontent and wish we were living

Nicah Shayne B. Madayag

REFLECT: The Credit Card and Mortgage Schemes and Scams; DETERMINE: Ways of living within your means someone else life. Instead of scrolling through social media and growing envious of others’ lives, I should focus with my own life with contentment. https://www.debt.org/credit/predatory-lending/