Credit & In America: Crisis or Way of Life? Economics Pineda *

Schedule for this week – Per 2 Mon & Tues – Notes & Discussion on “Credit & Debt in America” -what is credit / debt? -how does credit work? -charge accounts & buying on credit, Quiz 1 and 2 on credit, etc. Fri – Quiz 3 & Documentary “The Secret History of the Credit Card” + Essay Assignment *

Credit is receiving of funds either directly or indirectly to buy goods and services today with the promise to pay for them in the future. Principal is the amount of money you originally borrowed. Interest is the amount of money you pay for borrowing money.

Purpose of Credit People use credit for two reasons: 1. To get what they want without waiting 2. To spread payments over time. When you use credit you also pay interest on the credit you use. It’s a good idea to know the cost of credit (interest rate, aka APR) before you make a decision

Not All Debt Is Evil Credit is a valuable tool, yet many people misuse and overuse it. Installment Debt is the most common form of debt -Debt is repaid over a period of time in equal payments -Most people use credit to buy durable goods (items that last longer than three years) -Largest example of installment debt are mortgages for homes

Excessive Debt Six Warning Signs 1 Making only the minimum payment 2 Maxing or nearly maxing out credit cards 3 Not knowing how much is owed 4 Using credit cards to purchase items that used to be purchased with cash 5 Paying off one card with another card 6 Phone calls or letters from creditors

Lowering Your Debt -Ask Your Credit Card Company To Lower Your Interest Rate -If Your Card Company Won’t Lower – Shop For A Lower Rate Card -Set up a tight budget and stick to it. Find ways to save money -Set realistic goals

If You Are In Trouble -Stop Borrowing -Contact Your Creditors -Know your rights. Review the Fair Debt Collection Act -Speak with a credit counselor

Types of Financial Institutions 1. Commercial Banks- main business checking, savings, and loans: Bank of America; Chase; Wells Fargo 2. Credit Unions- is owned and operated by its members and offer competitive rates: California Credit Union, Universal City Studios Credit Union 3. Finance Companies- makes loans to customers on behalf of stores: HSBC Group will finance Felix Chevrolet 4. Savings and Loan Associations- like a bank except no checking: Downey Savings & Loans 5. Savings Banks- Like the first two except smaller: Broadway Federal Bank, Century Bank

How does Credit work? Finance Charge- is what you pay for the privilege of using credit. Annual Percentage Rates (APR)- is the cost of credit expressed as a yearly percentage. Debit Cards- is like a credit card except you use the cash in your checking account to pay for things. US Debt Clock

BofA MasterCard WALTER PINEDA March Purchases 1. Tony Roma’s $50 2. Universal Studios $100 WALTER PINEDA APR of 9% (charged when MINIMUM is paid or you don’t pay) Balance (all expenses) for March = $ Total Payment Due in April = $ MINIMUM Balance Due = $20.00 Amount you will finance @ 9% = New Balance for May = Unpaid BAL + .09% = *

BofA MasterCard Balance (expenses) for April = $ _____ April Purchases 1. Jack in the Box $10 2. K-Mart $50 3. Metro PCS $50 4. Senior Portraits $100 Rosemary Vela APR of 11% (charged when MINIMUM is paid or don’t pay) Balance (expenses) for April = $ _____ Total Payment Due in May = $ _____ MINIMUM Balance Due = $30.00 New Balance for June = unpaid BAL + .11% = *

BofA MasterCard Quiz 1 APR = 17% Balance for March 1 = $ _______ March Purchases 1. Gap $50 2. Gus’s $20 3. City Walk $50 4. Sears $70 5. 7-11 $10 APR = 17% Balance for March 1 = $ _______ Total Amount Due by April 1 = _______ Minimum payment is $15, and you pay it. Amount you will finance @ 17% _______ New Balance for May = $ _______ *

BofA MasterCard Quiz 1 KEY March Purchases 1. Gap $50 2. Gus’s $20 3. City Walk $50 4. Sears $70 5. 7-11 $10 APR = 17% Balance for March 1 = $200 Total Amount Due by April 1 = $200 Minimum payment is $15, and you pay it. Amount you will finance @ 17% = $185 New Balance for May = $216.45 *

BofA MasterCard Quiz 2 Previous unpaid balance from February = $700 March Purchases 1. King Taco $20 2. Target $10 3. The Grove $50 4. Senior Packet $300 5. JC Pennys $40 APR 11% Previous unpaid balance from February = $700 Balance for March 1 = $ _____ Total Amount Due in April 1 = $ _____ Minimum payment is $15, and you pay it. Amount you will finance @ 11% $_____ Interest (APR) you will pay $ _____ New Balance for May = $_____ *

BofA MasterCard Quiz 2 KEY March Purchases 1. King Taco $20 2. Target $10 3. The Grove $50 4. Senior Packet $300 5. JC Pennys $40 APR 11% Previous unpaid balance from February = $700 Balance for March 1 = $1,120 Total Amount Due in April 1 = $1,120 Minimum payment is $15, and you pay it. Amount you will finance @ 11% = 1,105 Interest (APR) you will pay $121.55 New Balance for May = $1,226.55 *

Are You Worthy of Credit? Several factors affect your creditworthiness: 1. Your credit Rating- how you handle credit 2. Capacity to Pay- how much debt do you have versus how much you make 3. Character- your reputation Collateral- is money, cars, homes Secured Loans- are loans that are backed up by collateral Unsecured Loans- have no collateral *

Consumer Protections I. Truth in Lending Act (1968) Ensures that consumers are fully informed about costs of borrowing II. Fair Credit Reporting Act (1970) Protects privacy and accuracy of your credit report III. Equal Credit Opportunity Act (1974) prevents discrimination when applying for credit IV. Bankruptcy- is when you can’t repay your debt; it ruins your credit for ten years and you lose stuff still owed!

QUIZ Time!!!

Previous Balance (carry over) from Dec = $231 Practice January Purchases 1. King Taco $20 2. Target $10 3. The Grove $50 4. Senior Packet $300 5. Tome Liquor $40 APR 17% Previous Balance (carry over) from Dec = $231 Balance for Jan 1, 2017 = $ _____ Total Amount Due by Feb 2017 = $ _____ Minimum payment is $5, and you pay it. Amount you will financed @ 17% $ _____ Interest (APR) paid is $ ____ New Balance for March = $_____ *

Previous Balance (carry over) from Dec = $231 January Purchases 1. King Taco $20 2. Target $10 3. The Grove $50 4. Senior Packet $300 5. Tome Liquor $40 KEY APR 17% Previous Balance (carry over) from Dec = $231 Balance for Jan 1, 2017 = $420 Total Amount Due by Feb 2017 = $651 Minimum payment is $5, and you pay it. Amount you will financed @ 17% = $646 Interest (APR) paid is $109.82 New Balance for March = $755.82 *

QUIZ 3

QUIZ 3 Carry over from April is $399.99 Balance for May is $ _______ May Purchases 1. Office Depot $40 2. Gap $20 3. Americana $150 4. Best Buy $1000 APR 29% Carry over from April is $399.99 Balance for May is $ _______ Total Payment Due in June = $ _______ MINIMUM Payment is $50 $ ______ will be Financed @ 29% Interest = $ _____ New Balance for June = $ _____ *

Next: The Secret History of the Credit Card THE END Next: The Secret History of the Credit Card -But first, more practice using credit cards -Quiz 3 *

Assignment 1. Select one question 2. Take notes on your question 3. Write (typed) a 5-paragraph essay on your question 4. Due Monday – 100 points *