1. Credit Management
Review

2. Credit use review
Remember … paying with credit is paying with someone else’s money.
Benefits
Convenience
Buy now pay later
Don’t need to carry cash
Emergencies
Costs
Credit problems
Spending beyond what you can afford
Interest and fees
Sacrifice other spending

3. Types of credit review Open-ended Credit Cards Lines of Credit
Home equity line of credit
Student loan line of credit
Closed-ended
Personal Loans
Student loans
Car loans
Mortgages
Primary (main home)
Secondary (main home, second home, motor home)
Refinance – replace primary mortgage to get a lower interest rate or money for something (wedding, college, boat, etc.)

4. Type of financing you would use Type of Credit (open or closed-ended)
Types of loans review
Purchase
Type of financing you would use
Type of Credit (open or closed-ended)
Secured (Yes/No)
Installment (Yes/No)
House
Personal loan (mortgage)
Closed
Yes
Home Equity Line of Credit
Personal loan
Open
Usually
New or used Car
Yes (usually)
College tuition
Student loan (personal loan) No
Holiday shopping
Credit card

5. History of Credit in America
Bartering
General store gave first credit
Monthly, seasonal and yearly credit
Bank loans had very high interest rate
1900s
Moved from agricultural to labor based economy
Weekly paychecks
People bought luxuries
Credit became its own business

6. History of Credit in America
US credit protection laws
Credit abuse / over use became common
Today
Internet exploded use of credit cards by consumers and businesses. Companies issue credit because they make $$
Even non-banks now issue all purpose credit cards
Stores
Gas stations

7. Credit cards today You need a Credit or Debit card number to:
Rent a car
Reserve a hotel room
Buy gasoline at night in some neighborhoods
Replacing travelers' checks
More use leads to more competition
More competition leads to user rewards
Points (for travel, electronics, etc.)
Cash back

8. The Cost of Credit There is an opportunity cost of borrowing
You have to pay interest to the lender.
The lender charges interest because that’s how they make money.
Principal: The amount you borrowed minus any principal payments your have made. When you make payments, part goes to principal and part goes to interest.
Interest: The cost of borrowing
Interest Charge: = Principal x Interest Rate
There is also a risk of late fees if your payment arrives late.
Cash advance fees are charged when you get cash with your credit card.

9. The Cost of Credit
Ex: Buy a television for $500. Financing is 5% interest for the year. You will pay $500 * 1.05 = $525 total.
Principal = $500
Interest Charge = $500 * 5% .
Cost of borrowing = $25.
Ex: Finance $4500 for a car for work.
Principal = $4500
Interest Charge = $4500 * 5.9% = $265.50

10. How Debt Works

11. 5 C’s of Creditworthiness
Lenders use these to decide if you are credit worthy.
Character: reputation (who you are)
Capacity: ability to pay (income/salary/paycheck)
Capital: net worth or what you own
Collateral (asset that secures the loan)
Conditions
Principal
Interest rate
Length of time
Investopedia explains 'Five Cs Of Credit'
This method of evaluating a borrower incorporates both qualitative and quantitative measures. The first factor is character, which refers to a borrower's reputation. Capacity measures a borrower's ability to repay a loan by comparing income against recurring debts. The lender will consider any capital the borrower puts toward a potential investment, because a large contribution by the borrower will lessen the chance of default. Collateral, such as property or large assets, helps to secure the loan. Finally, the conditions of the loan, such as the interest rate and amount of principal, will influence the lender's desire to finance the borrower.

12. Consumer Bankruptcy
The U.S. Constitution affords you “the ability of relieve all or part of your debts when you can no longer meet your obligations to creditors and lenders” (About.com).
When you declare bankruptcy, the court will take possession of your assets (what you own of value) and liquidate it (sell it for cash) in order to pay off you debtors (the people/businesses you owe money to.
Chapter 7 – Your liquidated assets are used to pay off your debt. Anything debt left unpaid will be discharged, or forgiven, meaning you are no longer responsible for paying it.
Chapter 13 – The court sets up a repayment schedule to help you repay debts.
More information at incharge.org/ and bankruptcylawyer.net