Section 1
The current debts that I have are monies borrowed from family and friends and my credit card. Debt is basically any money I owe individuals or institutions as a result of borrowing. The assets that secure my debts include; the salary I earn on a monthly basis from my part time job. My debts help me finance some short term and long term assets. The short term ones include; clothing, and miscellaneous items that I can sell within a year. The long term assets include; my laptop, television and bicycle. The cost of my debt is only seen on my credit card, and the interest rate for my credit card is 13%. This cost was determined by the institution that provides the card. Debt has various risks; I have noticed that the cost f my credit is not fixed as the interest rates sometimes change. It would be very risky if the change was an increment, this would impact the cash at hand I would have available. According to Business Queensland (2021), debt is helpful in financing a business that will allow an individual to retain profits. Also, having to only make a certain repayment helps with managing cash flow.
Section 2
A default risk, is the risk that an individual who borrowed money becomes unable to fulfil their repayment obligation on a debt. At the moment I do not consider myself a default risk, although, if I had to lose my job I may become one. According to Segal (2021), the 5cs include; character, capacity, capital, collateral and conditions. Character is understanding an individual’s past history with debt. The capacity of someone looks at the income and debt, that is if the income is able to pay off the debt. Capital is how much a person can cover to finance something, for instance, the client should be able to pay something towards what they wish to procure or invest in. Collateral is the security that the borrower is ready to offer in the event that they are unable to pay back the loan. Conditions are the rules that dictate the loan; repayment amounts, cost of loan and more. These 5Cs in connection with me would be; character – I pay all my loans on time and as agreed. Capacity – I am currently employed and fulfill my repayment obligations. Capital – I have been able to buy some assets in the past and can use them to help finance a venture. Collateral – I have various assets that can be used as collateral. Conditions would ideally be agreed upon according to the circumstances. The first thing I would do to make myself attractive to a lender is ensure my credit history is spotless and good. Another was would be to not have too many debts.
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Section 3
Although the video is very funny, there are a lot of aspects of it that relate to real life. For instance, people tend to reach a level of debt where they start to ignore certain people/institutions. Also, they feel that the debt is to much to manage and instead choose to ignore it. The comedy is very funny, because of how nonchalant the debtor is towards the debt and does not seem overly concerned about how it will affect his future debts or current debt score. The sad part about the video is that many people tend to get debt without having a sensible reason. There is part in the video where Tim says something in the lines of; I have a lot of useless things that I would not have ideally afforded if not for having this credit card (Clue, 2007). The video shows that people should not use debt in order to fulfil desires or random buying; it should instead be used for procuring beneficial products that are useful and can help bring in wealth.
References
Business Queensland. (2021). Debt Finance. Starting a Business . https://www.business.qld.gov.au/starting-business/costs-finance-banking/funding-business/debt
Segal, T. (2021). Five Cs of Credit. https://www.investopedia.com/terms/f/five-c-credit.asp
Tim Clue. (2007, July). On Debt. YouTube, uploaded by Kathryn Lake. https://www.youtube.com/watch?v=I5bbvMR8Ee4.
