If you use savings to pay off a loan, what happens to net worth?

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Multiple Choice

If you use savings to pay off a loan, what happens to net worth?

Explanation:
Net worth is assets minus liabilities. When you use savings to pay off a loan, you reduce an asset (cash) and simultaneously reduce a liability (the loan) by the same amount. These two changes offset each other, so net worth stays the same. For example, if you have $10,000 in savings and owe $4,000, your net worth is $6,000. Paying $4,000 from savings to clear the loan leaves you with $6,000 in cash and no debt, still a net worth of $6,000.

Net worth is assets minus liabilities. When you use savings to pay off a loan, you reduce an asset (cash) and simultaneously reduce a liability (the loan) by the same amount. These two changes offset each other, so net worth stays the same. For example, if you have $10,000 in savings and owe $4,000, your net worth is $6,000. Paying $4,000 from savings to clear the loan leaves you with $6,000 in cash and no debt, still a net worth of $6,000.

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