📚 How Well Do You Know Personal Finance?

Correct! Keeping your credit utilization under 30% is considered good for your credit score. Under 10% is even better. This means if you have a $10,000 credit limit, try to keep your balance below $3,000.

This is the minimum payment trap! At just the minimum payment, a $5,000 balance at 20% APR can take over 25 years to pay off—and you'd pay over $8,000 in interest. That's why paying more than the minimum is so important.

Correct! An auto loan is secured debt because the car serves as collateral. If you don't pay, the lender can repossess the vehicle. Credit cards and medical bills are "unsecured"—no collateral backs them up.

Correct! Compound interest means you earn (or owe) interest on your interest. In savings, it helps your money grow exponentially. In debt, it makes balances snowball against you. It's why Albert Einstein allegedly called it the "8th wonder of the world."

Correct! DTI is your monthly debt payments divided by your gross monthly income. Lenders use this to evaluate how much debt you can handle. Generally, under 36% is considered good, and under 43% is typically required for mortgages.

Correct! Financial experts generally recommend 3-6 months of living expenses in an emergency fund. However, when aggressively paying off debt, some people keep a smaller "starter" emergency fund of $1,000-$2,000 first, then build it up after becoming debt-free.

Correct! A balance transfer moves debt from one credit card to another—often one with a 0% promotional APR. This can save money on interest, but watch out for transfer fees (usually 3-5%) and make sure to pay it off before the promotional period ends.

Correct! The grace period is the time between when you make a purchase and when interest starts accruing—typically 21-25 days after your statement closes. If you pay your full balance during this period, you pay no interest on purchases.

Correct! The avalanche method targets the highest interest rate first, saving you the most money mathematically. The "snowball" method targets the smallest balance first for psychological quick wins. Both work—choose what keeps you motivated!