Chapter 8 Preserving Your Credit

Ch. 8 Objectives Discuss living arrangements and financial issues that roommates face Describe contractual rights and responsibilities for landlords and tenants Discuss long-term debt options for the purchase of high- priced items Explain the purpose of a debt repayment plan List ways to reduce your credit costs and lower your dependence on credit. See Intro to Chapter Page Slide 2

Slide 3 What Are Shared Responsibilities? 8-1 Identifying Financial Issues Shared responsibility is when two or more people agree to bear a portion of an obligation. A roommate is a person with whom you share living space and responsibilities.

Considerations for Roommates Living Habits –Smoking/Drinking –Cleanliness –Social Life –Chores Financial –Income –Security Deposit Slide 4

Slide 5 Group Budget 8-1 Identifying Financial Issues Group budgeting allows allocation of expenses so that each person pays his or her share.

Slide 6 Tenant Rights and Responsibilities 8-1 Identifying Financial Issues Rights To possess and enjoy the property To come and go and have guests To use common areas, such as pools Responsibilities To use the property only as intended To care for the property and report repairs To obey the rules

Slide 7 Landlord Rights and Responsibilities 8-1 Identifying Financial Issues Rights To receive rent in a timely manner To inspect the property Responsibilities To provide a safe, sanitary, and habitable living site To provide a convenient way to pay rent To keep security deposits in a separate account and refund unused portions

Slide 8 Focus On... Page 253,255 Reading a Lease Agreement: A lease is a property rental agreement that lasts a year or longer. A month-to-month agreement means you can leave with a 30-day notice. A lease gives you the security of knowing property is committed for a fixed time period. Read a lease agreement carefully before signing to avoid traps. 8-1 Identifying Financial Issues

Slide 9 Buying a Car A car loan is usually an installment loan with monthly payments. 8-2 Long-Term Debt Repayment Make a down payment (cash deposit) toward purchase price. Can trade-in existing car as down payment. Consider a preapproved loan, dealer financing, or a lease.

Auto Depreciation Loss of value from original price Cars lose value after driven off car lot –Becomes a used car See pages * Be careful not to get “upside down” on your car loan – –Have a good down payment, get a low interest rate Advantages of preapproved loan Leasing vs. Buying Slide 10

Slide 11 Buying a House 8-2 Long-Term Debt Repayment A down payment of 10 to 20 percent of the purchase price is often required. Property is used as collateral for the loan. A conventional loan lasts up to 30 years. Closing costs are expenses paid to get a loan, such as appraisal fees and credit report fees. A mortgage is a long-term debt agreement used to purchase real estate.

FHA Loans First time homebuyers –Smaller down payment –3.5% down –Average 640 credit score required Slide 12

Paying Down Debt: Student Loans Payments can be deferred –Start 6 months after no longer registered for class –Can choose to make earlier payments but not required –Subsidized (interest starts after graduation) vs. Unsubsidized (starts accruing interest right away) Mulultiple loans can be consolidated –Lower monthly payment –But…always pay more than minimum! See page 262 Loan Forgiveness – by Federal Government Slide 13

Slide 14 What Is a Debt Repayment Plan? 8-2 Long-Term Debt Repayment A debt repayment plan is a strategy for paying off debt to reduce interest paid.

Paying Your Mortgage Choice of 15 year or 30 year –Affects monthly payment and interest rate Balloon Payment –Final payment is higher –Could have a lower interest rate –Lower monthly payments –Lump sum at the end can be a negative Slide 15

Rent-to-Own Portion of rent is applied to purchase Price is locked in Used for homes and other items (furniture, electronics) Slide 16

Slide 17 How Can You Manage Credit Use? Pay bills on time to build a solid credit history. Pay entire amount to avoid paying interest. Establish a cash fund and have unused credit. 8-3 Credit Management Establish credit so it will be available in the future. (write checks, use a debit card, utilities in your name)

Economy and Loans Good economy –People buy more –Interest rates rise Bad economy –Less buying –Lower interest –So this would be a great time for you to refinance a loan if you have good credit Slide 18

Slide 19 Study Credit Offers 8-3 Credit Management Compare disclosure terms. o Interest rates o Grace period o Annual fee o Minimum finance charge o Transaction fees o Cash advance fees o Late fees o Over-the-limit fees

Slide 20 Avoid Unnecessary Credit Costs 8-3 Credit Management Keep the number of credit cards and accounts to a minimum. Comparison shop for credit cards. Consider special deals and financing. Use credit to get sale prices. ( Not a good idea in my opinion) Time your credit purchases. Get cash rebates and rewards. Pay bills on time or early.

Slide 21 Avoid Unethical Loan Practices A loan shark offers illegal unsecured loans at high interest rates. An advance-fee loan includes a large upfront fee. 8-3 Credit Management Equity stripping involves giving a loan to a homeowner who cannot afford it, then taking possession of the home.

Slide 22 Success Skills 8-3 Credit Management Stress Management Identify the causes of negative stress. Take steps to avoid or change these situations. Seek counseling for serious stressful events. Find activities to help you relax. Spend time with family and friends. Get rest, eat healthfully, and stay active.