1. Consumer Buying & Credit
Chapter 10

2. Objectives Describe the steps of preparing a good buying plan
Discuss the advantages and disadvantages of using credit
Discuss the responsibilities of using credit and the obligations of borrowing money

3. Buying Plan
As a consumer you should shop wisely to ensure that you are buying gods and services that will best meet your needs at the lowest possible price
Planning avoids Impulse Buying when you buy something on the spot without thinking about it
Impulse buying leads to buyers remorse
A Buying Plan is an organized method for making good buying decisions

4. Question
Have you ever experienced buyer’s remorse? Discuss with a partner what happened. What will you do differently to avoid this situation in the future?

5. Buying Plan Criteria: standards or rules by which something is judged
5 Steps involved with buying plan
- Define your goal
- Identify your limits
Spending limit: pre set amount that you will pay for an item
- Research your options
Criteria: standards or rules by which something is judged
- Evaluate your options
Make the purchase decision

6. Credit: Friend and Foe Benefits
Credit increase your standard of living
Credit is convenient
Credit is safer than carrying cash
Credit gives you buying power
Credit gives you records
Credit can pay you back
Using credit builds your credit history
Credit increases your financing options

7. Credit: Friend and Foe Dangers Credit can lead to overspending
Credit can reduce comparison shopping
Credit is expensive
Credit ties up future income
Credit can be dangerous in tough economic times

8. Responsibilities of Credit
No Such Thing As A Free Lunch
Regular on Time Payments
Avoid late fees
Secure Payments
Careful Use of Credit
Over the limit fee: penalty of using excess credit
Monitor Accounts
Notifications and help

9. Question
On your IPad research the Credit Card Act of Write some notes down about the features of the law which are beneficial to the consumer. What was the reason and intent of the law? Do you think it has served it’s purpose?

10. Objectives
List and describe the types of loans and sources of credit available to consumers
Explain the contents of credit report and how to improve your credit score

11. Loans and Sources of Credit
Consumers who are creditworthy are able to borrow money
Credit is the ability to borrow money and pay it back later
Those who borrow money are debtors
Creditors are lenders willing to make loans

12. Consumer Loans
Consumer loan is a direct loan of made to a consumer at a set interest rate for a specific period of time
When the consumer makes regular payments for a set period of time, the consumer has an installment loan
Single payment loan is a loan that is repaid in full on a set date in the future

13. Consumer Loans
With any loan that a consumer makes, as the borrower they must sign a promissory note
Promissory Note is a legal contact that requires the borrower to make principal payments plus interest
Promissory Notes are a negotiable instrument; meaning they can be sold or assigned to another person or company for collection

14. Consumer Loan
If a consumer’s creditworthiness is not good enough to borrow money than a lender may require a co-signer
Co-signer is a person who also signs the loan agreement and agrees to pay the loan if the borrower is unable to do so
A personal line of credit is preapproved loan amount that a borrower can access as needed

15. Question
With a partner, answer the following questions in your notebook
What is an installment loan?
What is the purpose of a promissory note?
What is the purpose of requiring a co-signer?

16. FAFSA: Free Application for Federal Student Aid
Student Loans
Many students need help to pay for college and look to student loans
FAFSA: Free Application for Federal Student Aid
Subsidized Federal Stafford Loans: need based government secured loans with low interest rates, deferred payments, and flexible repayment plans.
Unsubsidized Federal Stafford Loans: are not need based loans and unlike subsidized loans accrue interest from the day the loan is given.

17. Student Loans FAFSA: Free Application for Federal Student Aid
Federal Perkins Loan: for those that have the greatest need and meet rigid eligibility requirements
Banks and credit unions also offer student loans that are not tied to government monies
Common aspect of student loans is that repayment does not have to start until the student has stopped going to school

18. Sources of Credit
A common type of credit available to consumers is Service Credit which is the ability to receive services and pay for them later
A credit card is a form of consumer loan
General purpose card card is what you use to make retail purchases

19. Sources of Credit
Revolving Credit is when you charge to the account, make payments and keep using the account until your reach your maximum limit or you close the account
A minimum monthly payment is required to remain in good ongoing balance and in good standing
Paying only the minimum monthly requirement will cause on to pay considerable interest
A store account is a specific purpose credit card

20. Credit Records, Reports and Scores
Credit bureaus are businesses that gather, store and sell credit information about consumer to their business members
3 national credit bureaus that maintain files and supply credit information , ratings and scores
TransUnion
Experian
Equifax

21. Credit Report
A credit report is a statement of your credit history issued by a credit bureau
It’s a completed record of your borrowing and repayment performance
How many accounts you have
Current balances
Current payments being made
Shows unused credit
Unused credit is the difference between your credit limit and your credit balance on each account

22. Credit Scores
A credit score is a numeric rating that is compiled on a point system by the credit bureaus
Most credit scores are based on a system of rating called FICO (Fair Isaac Corporation)
FICO scores range from 350 to 850
Calculated on 5 categories
Payment History (35%)
Amount Owed (30%)
Length of Credit History (15%)
New Credit from recently opened accounts (10%)
Types of Credit Used (10%)

23. 500 & Below = Poor Credit Record
Credit Scores
= Excellent
700s = Very good
600s = Average
500 & Below = Poor Credit Record
You should try to keep your balances less that 50% of your available credit in order to improved your credit score

24. To Improve Your Credit Score
Pay your debts promptly and before due date
Pay more than minimum payment
Reduce your outstanding credit
Don’t apply form more than one new account or card at a time (New credit lowers your score)
Keep a good mix of credit
Check your credit report often to be sure it is accurate

25. Questions What is revolving credit?
What is contained in a credit report?
Why is it important to be a low-risk borrower?

26. Managing Credit and Debt
You must use credit wisely
In short you can use several ways to manage credit and maximize the benefits while minimizing the cost
Timing
Credit Offers
You must also be aware of the dangers
Manage your debt load
Avoid Unethical Loan Practices
Prevent Credit Card Fraud

27. Time Is Everything
The Billing Cycle is the time period when the account is closed to prepare your monthly statement
Example: Billing: closing date on the 15th of every month, what you purchase on the 16th won’t be billed until the following month
Timing can expand your ability to minimize the interest on the balance

28. Time Is Everything Knowing your grace period helps you manage payments
Grace Period is the amount of time you have to pay your credit card bill without being charge interest on new purchases
The longer your grace period is the more time your have to pay before interest is charged

29. Manage Your Debt Load
Debt Load is a person's outstanding debt obligations at any point in time
Whether or not your debt load is acceptable depends on:
Your ability to make regular payments
Your ability to play off debt quickly if necessary
Your level of comfort with the amount of debt you owe

30. Manage Your Debt Load The 20/10 rule states:
Installment debt should not exceed 20% of yearly take home pay
Credit cards (revolving debt) payments should be no more than 10% of your monthly take home pay
Because debt represents future income that cannot be spent, it’s important that your debt be at a reasonable level

31. Manage Your Debt Load
When you’re feeling uncomfortable with the amount of debt you have, there are several things you can do to reduce and eliminate credit card debt by setting up a debt repayment plan
Pay off highest interest balances first
Contact non profit consumer credit counseling service for advice and to negotiate lower interest rates
If you own property you can possibly obtain a debt consolidation loan (*Lowers overall interest)

32. Avoiding Unethical Loan Practices
Desperate individuals may fall prey to loan scams
Equity stripping is the unethical practice of extending a loan to a distressed homeowner who cannot afford the loan payment. As a result the lender soon repossess the home
Advance Fee Loan is a loan with a large upfront fee. The fee greatly reduces the amount that is borrowed
If it sounds that a loan is too good
to be true it probably is

33. Bankruptcy as the Choice of Last Resort
Bankruptcy is a legal procedure to relieve a person of excessive debt
Reason why debtors cannot pay their bills and seek bankruptcy include the following:
Excessive Medical Bills
Small Business Failure
Overspending and unwise credit use
Loss of employment and being overextended
Having no savings ore emergency fund for unexpected losses

34. Bankruptcy
Chapter 7 Bankruptcy aka straight bankruptcy or liquidation bankruptcy
Debtor forfeits assets in exchange for discharge of debts
Discharge is a court order that pardons the debtor from having t pay previous debt obligations
Debtors assets are sold (liquidated) and monies are used to repay debts

35. Bankruptcy Chapter 11 Bankruptcy aka business reorganization
Businesses filling chapter 11 get the opportunity to retain assets and remain in operation after a plan for reorganization is filed and approved by court

36. Bankruptcy Chapter 13 bankruptcy aka individual debt adjustment
Calls for individuals to enter repayment plan
Designed for debtors who have a source of income
Rather than liquidating assets debtors court order plan to repay as much debt over a 3-5 year period

37. Bankruptcy
Benefits
Automatic stay which means no further action may be taken by creditors including collection of debts
Most debts are erased leaving a clean slate to start over
Bankruptcy Exemption which allows some property to remain in possession by the debtor and not forfeited

38. Disadvantages
Damages credit rating
Businesses are reluctant to do business with you
Creditors charge higher interest rate
Makes it difficult to get any other sort of credit