Credit: What is it and should I use it? Money Management II Credit: What is it and should I use it?

Credit advantages vs. disadvantages What We’re Doing Today Talking about credit Why do we use credit? Credit advantages vs. disadvantages

What is Credit? Credit is an arrangement to receive cash, goods, or services now and pay for them in the future. Credit can be used by both business entities and by individuals.

Consumer Credit When credit is used for personal needs it is referred to as consumer credit. There are numerous sources of consumer credit! Credit is provided by a creditor, an entity that that lends money. Examples of creditors include financial institutions, merchants, and individuals.

Why is Credit Important? Credit is an important financial tool for functioning adults. Consumer credit is a major force in the American economy. Any forecast or evaluation of the economy takes consumer spending trends and consumer credit into account.

Consumer Credit

Why Do You Use Credit? Two great reasons: Save money – building credit history can lead to lower interests rates and better deals! Purchase items that we cannot afford on a cash basis

But Beware, Credit Isn’t Always Your Friend! Using credit may increase the amount of money you can spend now, but the cost of credit decreases the amount of money you will have in the future. Not only will you be paying back the money you borrowed, but you will also owe your creditor any charges for borrowing that money. When misused, credit can result in default, bankruptcy, and loss of creditworthiness.

Factors to Consider Before Using Credit Is there a down payment? Do you have the cash for the down payment? Do you want to use savings instead of credit? Can you afford the item? Could you use the credit in a better way? Can you put off buying the item for a while? What are the opportunity costs of postponing the purchase? What are the costs of using credit?

Advantages of Using Credit Ballin’ out of control! Allows you to enjoy goods and services now and pay for them later. It’s necessary for several purchases, even smaller ones you can afford to pay in cash Online shopping Hotel reservations Safer than cash One monthly bill for multiple purchases Easy to record expenses Can improve credit worthiness when used properly

Disadvantages of Using Credit Temptation! Using credit to purchase items you cannot afford can lead to trouble. Property loss Loss of credit worthiness Using credit does not increase your purchasing power, it simply allows you to purchase items now with the agreement to pay for them later!

Wrap Up & Review What is credit? Why is it important? Money now, pay later Why is it important? Credit is necessary in today’s world. It is also a major indicator of the American economy. Should we use it? Of course! Just be careful and take all the other factors into consideration as well!