Borrowing Money Unit 6

At the end of this lesson you should understand how debt management and creditworthiness impact an individual’s ability to become a RESPONSIBLE consumer and borrower.

Credit Card Video http://vimeo.com/3081132

Credit Cards The average household receives five credit card offers per month in the mail, and more by telephone and the Internet

If you are going to get a credit card, it is important to understand what the offer you get in the mail means. http://www.federalreserve.gov/creditcard/flash/offerflash .html

How to choose You want a credit card with Low interest rate—APR interest on a credit card would be NEGATIVE interest—you are having to pay it Low or no annual fee

How to use The best way is for emergencies only. If that’s not possible, use it for things you NEED. Make sure you make payments ON TIME! Avoid late fees Keep and maintain records Make more than just the minimum payment— Remember—interest is building up and you are going to spend more the longer it takes to pay it off. Let’s look at an example

Say your credit card statement balance is $3,000 and your minimum payment due is $20. You submit your minimum payment on time and make no new charges on the card. During the next billing cycle, the amount of interest accrued on the card balance is $95. (Note: This number is merely used as an example and not meant to reflect any specific APR.) Your next credit card statement balance would then be $3,075, with a minimum payment due of $20. You submit your minimum payment on time and make no new charges on the card . During the next billing cycle, the amount of interest accrued on the card balance is $100. Your next credit card statement balance would then be $3,155, with a minimum payment due of $20, and the cycle continues.

Online Credit Card Calculator http://senseanddollars.thinkport.org/games/charge/char ge1.html

Another way to use If you want to build your credit Put some monthly expenses on your card Put the money aside to pay for the bill When the bill comes, pay the ENTIRE amount

Loans May be needed to pay for a large purchase Has a specific repayment schedule Sources of loans Commercial banks, savings institutions, finance companies, credit unions, some automobile manufacturers

What I may need a loan for Student loans—college House Car

What I need to look at when getting a loan Amount Interest rate (interest on a loan would be NEGATIVE interest—you are having to pay it) Repayment schedule Life of the loan (how long do you have to repay) Do I need a cosigner?—(is my credit good enough or do I have enough credit history)

Good Credit How do I get and maintain good credit?

Credit Score Video Clip http://www.cbsnews.com/video/watch/?id=16209565n?t ag=mwuser

Know what goes into your score Pay your bills on time Keep your credit card balances low Manage your debt Don’t close old credit cards Limit your applications for new credit

Borrow, Do Not Borrow Read each statement and decide whether you should borrow money or not. Then explain why.

With the move to high-definition televisions, you decide to buy a new flat screen HDTV for your room. Do not borrow It is not NEEDED. Save up money and buy it if you must!

You have taken a summer job and need reliable transportation, so you decide to buy a used car. Borrow You need the car to get to work. You will be working so you can make payments. You are being sensible and buying a used car.

You are at the mall with friends and see a new pair of boots, but you do not have enough cash to buy them. Do not borrow. Do you have shoes on your feet? You do not NEED the boots. Save up your money…don’t use the credit card!

Your friend Harold just bought a new skateboard, so you want a new one too. Do not borrow. If you are going to borrow anything, borrow his skateboard. If you don’t have the money for your own, then you don’t need one.

You have just graduated from college and have a new job You have just graduated from college and have a new job. You have enough money for a down payment on a house, but need a loan to buy a house. Borrow A house is a good investment. You have money for a down payment which will bring your monthly payment down. You also have a job so you will have money for payments.

You have maxed out your credit card, so you are considering getting a loan to make your payments. Do not borrow Get a job—not a loan. You would be going into more debt to pay off part of your debt.

Your friends are going on a special trip to celebrate graduation, but you do not have the money to go. Do not borrow. You should get money for graduation gifts. Use that. If you do borrow, do it from a friend or family member.

You receive a scholarship to go to your favorite college, but it is not enough money to pay all of your expenses. Borrow You are investing in your education. Good investment!