Bellwork When do you think it is appropriate to use a credit card? When do you think it is not appropriate to use a credit card? Why do you think people get into so much financial trouble using credit cards?

Bellwork 1. Where do we draw the line for public responsibility versus personal responsibility? (think taxes) 2. Should the government pay for health care, education, and income for the unemployed, or is it the citizen’s responsibility to pay for those services?? Did you know? American Airlines saved $40,000 in 1987 by eliminating one olive from each salad served in first class

What do you Think? Nearly ____% of teens owe money to either a person or company, with an average debt of $____ About ___% of teens age 16-19 already have mor than $1000 in debt _____% of teen say they understand how credit card interest and fees work ______% of teens say they know how to establish good credit

Answers Nearly __33__% of teens owe money to either a person or company, with an average debt of $_230___ About _26__% of teens age 16-19 already have mor than $1000 in debt _30____% of teen say they understand how credit card interest and fees work __36____% of teens say they know how to establish good credit

What is credit and debt? Credit is when someone is WILLING to loan you money in return for interest paid. Debt is the ENTIRE amount of money you owe to lenders. Interest is the amount you pay to use someone else’s money. For example: I’ll loan you $5, but you need to give me $1 in interest for loaning you the money. In total, you will get your $5 back, and $1 in interest= $6. ASK STUDENTS Has anyone used a credit card recently? Was it in your name? If so, how did you get your card? How long have you had it? How, and why, do they use it? IF NOBODY HAS A CREDIT CARD, ASK Would you like to have a credit card? How would you use it? 4-A

Credit The best part of using a credit card is being able to buy something NOW But, you have to remember that the credit card company will expect payment back PLUS INTEREST.

Types of Credit #3 Credit card (gas company, department store, grocery store) Installment loan (car, appliance, etc) Student loan Mortgage (home loan) 4-B-2 4-B-1 4-B-3 1 2

What are some benefits of using credit? YOU CAN BUY SOMETHING NOW! Protection Emergencies Opportunities to Build Credit Special offers Bonuses Convenience 4-C-1 of 1 4

What are some disadvantages (risks) of using credit? (#9) Interest Overspending Debt Identity theft

The Language of Credit Universal Default allows a credit card company to increase your interest rate if you make just one late payment. Bankruptcy is a legal process to get out of debt when you can no longer make all your required payments. 4-C-4 of 4 4

The 4 C’s of credit Collateral: this is an asset that lenders can take from you Capital: lenders like knowing you have personal items of value Capacity:Are you able to repay the loan? Character: Are you trustworthy?

The Language of Credit Credit History is a record of your behavior related to borrowing and repaying loans. Credit Report is a detailed record of your personal credit and financial transactions. Credit Score is a rating used by credit reporting companies to help lenders decide whether and/or how much credit can be extended to a borrower. 4-C-3 of 3 4

How Credit Scores Are Determined Your payment history Information about how you make your payments on credit cards, store accounts, car loans, finance companies, mortgages Accounts in collection or past due, and how long past due Information in public records, such as bankruptcy, judgments, liens, wage attachments or child support Your credit score does change over time as you are carefully, or not carefully using credit 4-M-1 1 2 3

How Credit Scores Are Determined Your overall debt How much you owe on all your accounts How much credit you have available to use Your credit account history When you opened and used each of your accounts How recently you applied for new credit Recent good credit history following past payment problems 4-M-2 1 2 3

Get and Keep a Good Score Make sure your credit report is accurate. Pay all your bills on time. Apply for credit only when you need it. Lower the balances on all your credit accounts. Pay off debt rather than moving it around. 4-N

Credit Score Who looks at your credit score? Land lords, employers, lenders What if you have a low credit score? You may not be able to get a loan You may not be able to rent an apartment or house You may not get a job You may not get a credit card You may have to pay a higher interest rate and pay more fees if you ARE approved for a loan or credit card

Bankruptcy #18 Chapter 7: allows you to erase most of your debt (to qualify you typically must be unemployed or have a very low income. You must also undergo financial counseling) Chapter 13: Allows you to repay many of your debts over a period of time, usually no more than 5 years.

A few other things… The longer you have a loan (any loan), the more expensive it will be The maximum amount you should go towards any loan is 20% How can you reduce your debt? Make regular minimum payments until the balances are paid off. Debt is not necessarily bad 4-E

Acts… Fair Debt Collection Act- Creditors are allowed to hire a collection agency to collect what you owe, call any co-signer of a loan, send you a notice of what you owe. Truth in Lending Act- Lenders have a right to know why they were turned down for a loan

The Cost of Using Credit $300 for a CD Player And it will take 3 years and 8 months to pay off! APR = 24% Minimum Payment of 4% or $12 Finance Charge $149.99 Your CD player REALLY cost $449.99 After you’ve made the last payment, will your CD player still be around??? 4-H 1

The Cost of Using Credit Interest Rate = 24% Minimum Payment = 4% BALANCE TIME TO PAY OFF INTEREST CHARGED TOTAL COST $2,000 11 YEARS 5 MONTHS $1,850 $3,850 $4,000 14 YEARS 4 MONTHS $3,850 $7,850 $6,000 16 YEARS $5,850 $11,850 4-I 1 2 3

The Cost of Using Credit $3,000 Charged to Credit Account You Owed $3000 but You Paid $5936 APR = 21% Minimum Payment of 4% or $120 Finance Charges $2,220.56 Annual Credit Card Fee: $65 Paying the minimum, it will take you 11 YEARS and 10 MONTHS to pay off your debt. 4-J 1

Any questions???????????