1. Unit 4 - Good Debt, Bad Debt:
Using Credit Wisely

2. You have saved $400 from your part-time job
You have saved $400 from your part-time job. You want to go on a school-sponsored trip out of town next week, but the trip costs $700. You ask a classmate if you can borrow the $300 you need for the trip. Questions:
1) What will make you repay the money? 2) What could happen if you are unable to repay the money? 3) Is it fair for your classmate to charge you interest for borrowing their money? WHY?

3. Tell me about an actual event when you either borrowed money or someone borrowed money from you. Did being a lender/borrow affect the relationship.

4. Credit Facts
Nearly 33% of teens owe money to either a person or company, with an average debt of $230.
About 26% of teens ages already have more than $1,000 in debt.
30% of teens say they understand how credit card interest and fees work.
36% of teens say they know how to establish good credit.
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

5. Top 10 Questions to Ask Before Signing on the Dotted Line
Can I afford to pay the monthly payments?
What will happen if I don’t make the payments on time?
What will be the extra cost of using credit?
What will I have to give up to pay for it?
All things considered, is using credit worth it for this purchase?
Do I really need this item right now, or can I wait?
Can I qualify for credit?
What is the interest rate (APR) on this card?
Are there additional fees?
How much is the monthly payment, and when is it due?
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4-B-1
4-B-2 1 2

6. Don’t Buy Things You Can’t Afford

7. The Language of Credit
Credit is the amount of money or something of value that is loaned on trust with the expectation it will be repaid later to lenders.
Types of Credit
Borrow up to a predetermined limit (i.e., credit card)
Borrow cash to be repaid by a specific date
Borrow money for a major purchase to be repaid in regular payments over time, typically monthly (i.e., car loan, home mortgage)
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8. The Language of Credit
Debt is the entire amount of money you owe to lenders.
APR (Annual Percentage Rate) is the total cost to use credit in a year.
Term is how long you have to repay a loan, often expressed in months.
Fees are charged to use credit. Examples: Annual Credit Card Fee, Loan Origination Fee, Over-the-Limit Fee
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9. 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.
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10. 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.
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11. Common Types of Credit Type of Credit Institution
Credit Card Banks, Credit Unions, Stores, Gas Stations
Installment Loan Banks, Credit Unions, Auto Dealers, and Financial Institutions
Student Loan Banks, Credit Unions, and Federal Government
Mortgage Banks and Credit Unions

12. Sources of Credit Banks Credit Unions Department Stores
Automobile Dealers
Oil Companies (for gas stations)
Federal Government (for student loans)
Others?
4-E

13. Credit: Good and Bad Complete TRY IT! Page 46 Rewards Convenience
Protection
Emergencies
Opportunity to Build Credit
Quicker Gratification
Special Offers
Bonuses
Potential Risks
Interest
Overspending
Debt
Identity Theft
Complete
TRY IT!
Page 46

14. List four things you can do with money.
Question of the Day
List four things you can do with money.
Spend it on needs or wants
Save it
Invest it
Give it away

15. CHALLENGE
FRUIT
TUNA

16. Go to the computer with your sheet of paper and complete the following.
channelone.com

17. channelone.com Search Engine - Credit Card Simulator
Write which card you choose
At PAYMENT HISTORY
Write the amount you Spent
Write the amount of Interest you are Charged
Write the Total Cost
Number of Months

18. Write Down the Results for Each Quiz
Take the Credit 101 Quiz
Take the Will You Be Rich Quiz
Take the Money Master Quiz
Write Down the Results for Each Quiz

19. Define a secured credit card and give an example.
Who can file for Chapter 7 bankruptcy?
What are often the arrangements set up for someone who files for Chapter 13 bankruptcy?
Find average American’s (or household) credit card debt for 2010 – list the web address.
Define debt consolidation company and give 3 examples including name and web address.
Find a web site that gives realistic financial advice to those who are in “money” trouble. Give the web address and two points of creditable information you viewed.

20. 6 Questions to Ask When You Compare Credit
What’s the interest rate for purchases?
How long is the loan for?
What’s my minimum monthly payment?
What’s the grace period?
What extra fees and penalties may be charged?
Which is the best deal for me?

21. Things to have on hand when seeking a credit card or loan.
Social Security Number
Driver’s License Number
Date of Birth
Address and phone number
Name of your employer
Average Monthly Income
Total monthly payments on other debts
Amount of monthly rent or mortgage payment

22. The Four “Cs” of Credit (Lenders use in deciding how much to loan you)
Collateral
Capital
Capacity
Character
4-L

23. The Four “Cs” of Credit
Collateral – an asset value that lenders take from you if you don’t repay the loan as promised. In home and car loans, it may be referred to as a “secured” loan.
Capital – the personal items of value you have. These are items that if the loan is not repaid, can be sold to repay the loan; examples investment accounts and your home.

24. The Four “Cs” of Credit
Capacity – can you feasibly repay the loan (look at your credit worthiness, your income, and your employment history)
Character – are you trustworthy (look at you credit record for paying bills on time)?
Complete
TRY IT! Exercise 4E
Page 48

25. 2 Types of Credit Installment Credit Revolving Credit Fixed payments
Set period of time to repay
Set or varying interest rates
Car loans and home loans are typical examples.
Revolving Credit
No stated payoff time
Limit to credit
Minimum monthly payments
Interest rates vary
Other charges
Credit cards most typical example
4-D

26. Add the COST to calculate your individual CAPITAL or NET WORTH
Make a list of items and their “selling” price.
Example:
Play Station – Cost
25 Games – Cost
Jewelry – Cost
4-Wheeler – Cost
Add the COST to calculate your individual CAPITAL or NET WORTH

27. WHEN YOU BUY “STUFF” Your APR is 18%.
You bought “STUFF” with your credit card.
In fact, you bought $500 worth of “STUFF” with your credit card.
Your APR is 18%.
You plan to pay $10 a month to pay it off.
You will pay $431 in interest
Final cost of your purchases = $931.40
And it will take SEVEN YEARS and NINE MONTHS
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28. How Long Will It Take??? And it will take nearly 11 YEARS to pay off!
You owe $3,000 for a motorcycle.
And it will take nearly
11 YEARS to pay off!
APR = 18%
Payment: 4% of current balance
Finance Charge $
Total cost of original $3,000 loan = $
After you’ve made the last payment, will what you purchased still be around???
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29. The Cost of Using Credit
$700 for a Game System
And it will take over
7 years
to pay off!
APR = 24%
Payment: 4% of current balance
Finance Charge $550.04
Your GS player REALLY cost $1,250.04
After you’ve made the last payment, will your Game System still be around???
4-H 1

30. The Cost of Using Credit
$3,000 Charged to Credit Account
You Owed $3,000
but
You Paid
$6,065+
Includies annual fees
APR = 21%
Payment: 4% of current balance
Finance Charges $2,220.57
Annual Credit Card Fee: $65
Paying the minimum, it will take you 11 YEARS and 11 MONTHS to pay off your debt.
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31. The Cost of Using Credit
Interest Rate = 24%
Payment = 4% of Current Balance
BALANCE
TIME TO PAY OFF
INTEREST CHARGED
TOTAL COST
$2,000
11 YEARS
6 MONTHS
$1,850
$3,850
$6,000
16 YEARS
1 MONTH
$5,850
$11,850
$10,000
18 YEARS
2 MONTHS
$9,850
$19,850
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32. Complete Payment Calculator Worksheet

33. Did you know…
That about 40% of credit card holders carry individual balances of less than $1,000, while about 15% individually carry total credit card balances of more than $10,000.
That 48% of consumers individually carry less than $5,000 of debt (not including mortgage loans).
That the typical consumer has about $19,000 total credit available on credit cards. More than ½ of all people with credit cards are using less than 30% of the total credit limit.
Source: “Average Credit Statistics,” at

34. Credit Scores Report Card tracks your success in school. Credit Report
tracks your success in managing money responsibly.

35. Video: Credit Reports 101

36. Important Credit Report Definitions
Credit History - a record of your personal financial transactions.
Credit Report - a history of personal transactions for the past 7 to 10 years.
Credit Score - a number that reflects your credit worthiness, based on the 4 C’s.

37. Credit Reporting Agencies
Also known as credit bureaus
Sell your credit report information to businesses that are interested in finding out your credit worthiness.
Run your credit anytime you apply for a credit card, a loan, and sometimes when you apply for a job.

38. Credit Reporting Agencies
Three main agencies in the US:
Equifax
Experian
TransUnion
Every consumer in the US are entitled to a free copy of their credit report from one of the above companies once every 12 months.
FICO score - most popular credit score (ranges from 300 to 850).
Website: annualcreditreport.com NOT freecreditreport.com

41. 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
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42. 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
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43. How Credit Scores Are Determined
Types of Credit
The different types of credit accounts you have
The total number of accounts you have
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44. 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

45. Protect Yourself Against Inaccurate Credit Reports
Get a copy of your free credit reports from all credit rating agencies.
Examine it thoroughly.
If you find something that is incorrect, ask the agency to investigate the information.
If that doesn’t resolve the issue, you can attach a short statement to your credit report.
4-O

46. How you get started building your credit when ready
Ask a parent or another trusted adult to co-sign a credit card application or car loan for you. Remember the co-signer is on the hook, legally and financially.
Ask the place where you have your savings or checking account for a credit card application.
Apply for a credit card from a store, which is often easier to get than the major bankcards.

47. How should you get started building your credit when ready
Apply for a secured credit card.
When you rent a place with some of your friends, put at least one of the utility bills in your name and pay it on time.

48. Rule of Thumb Rule
4-P

49. DEBT Defined as the entire amount of money you owe to lenders.
Excessive debt affects your life (health) and relationships
Debt can overwhelm even responsible people when experiencing: illness, divorce, business losses, job losses, and life events that are beyond their control.

50. 2 Popular Methods Used to Tackle Debt
Take additional money you may have available and use it to pay off the debt with the smallest balance first – debt snowball.
Concentrate first on repaying the debt with the highest interest rate.
Be patient and persistent when
paying off your debt!

51. What Are the Priorities?
Complete
TRY IT! Exercise 4G
Page 56
What Are the Priorities?

52. Seeking Help with Debt
Creditors want to be repaid, so try to work with them to pay off your debt.
The Association of Independent Consumer Credit Counseling Agencies (AICCCA)-helps you find registered nonprofit credit counseling agencies in your area (
Last resort- file bankruptcy.

53. Are student loans worth it?
Are student loans worth it?

54. Bankruptcy
The legal process to get out of debt when you can no longer make all your required payments.
Used as a last resort after exhausting all other means to pay off excessive debt.
Can stay on your credit record for up to 10 years.
It won’t erase all debt, such as: student loans, child support, alimony, and penalties and fines for crimes a person committed.

55. Chapter 7 Bankruptcy Allows a person to erase most of their debt.
Qualifications:
Unemployed
Very Low Income
Requires financial counseling
The government has made it much harder for individuals to file this type of bankruptcy.

56. Chapter 13 Bankruptcy
Allows a person to repay many of their debts over a period of time, usually no more than five years.
The courts typically oversee the repayment plan to make sure it is being repaid.

57. Financial Consequences of Debt
It is your responsibility to repay your debts.
If you fail to repay debts, lenders may take legal action against you to recover what they can.
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58. The Truth in Lending Act
Requires that lenders tell you in writing the true interest rate and total finance charge before you sign a credit application.
Gives you the right, with certain types of credit, to cancel an agreement with a lender within three days.
If turned down for credit card or loan, the lender must tell you the specific reason for the denial and the reporting agency they used.

59. Fair Debt Collection Practices Act (FDCPA)
Protects a person from harassment by creditors.
Provides that a debt collector cannot:
Use abusive language with you
Call at unreasonable hours (only between 8 am and 9 pm) or an excessive number of times
Threaten to notify your employer or friends that you haven’t paid your bills

60. Fair Debt Collection Practices Act (FDCPA)
Attempt to collect more than you owe
Send you misleading letters that appear to be from a governmental agency or a court of law.
Report problems to the State Attorney General’s Office and the Federal Trade Commission (FTC)!

61. Reduce Your Debt by:
Put away the plastic, and stop adding to your debt. Start living on more of a cash basis.
Make a personal commitment to repay all your debts. Remember they are your debts.
Find out exactly how bad it is- how much do you really owe?
Create a repayment plan that you can stick with.

62. Financial Consequences of Debt
Could put you in a state of overspending and perpetual debt, where you get used to carrying a balance and paying extremely high interest rates.
Could adversely affect your credit rating, making it harder to get loans when you really need them.
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63. Financial Consequences of Debt
What if you took the $120 monthly payment in the last example and INVESTED $120 a month for the 12 years it took to pay off the $3,000 debt, and your investment got an 8% rate of return?
Instead of $6,000 paid out for $3,000 worth of “stuff”, your $120 monthly investments would amount to $28,799 in your pocket!
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64. Financial Consequences of Debt
Could put you in a state of overspending and perpetual debt, where you get used to carrying a balance and paying extremely high interest rates.
Could adversely affect your credit rating, making it harder to get loans when you really need them.
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65. Financial Consequences of Debt
What if you took the $120 monthly payment in the last example and INVESTED $120 a month for the 12 years it took to pay off the $3,000 debt, and your investment got an 8% rate of return?
Instead of $6,000 paid out for $3,000 worth of “stuff”, your $120 monthly investments would amount to $28,799 in your pocket!
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66. 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
4-M-1 1 2 3

67. 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
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68. How Credit Scores Are Determined
Types of Credit
The different types of credit accounts you have
The total number of accounts you have
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69. Previous Balance X1%= Interest Charge
Previous Balance + Interest Charge = Balance Plus Interest
Balance Plus Interest – Your Payment = Remaining Balance
Date
PREVIOUS BALANCE
INTEREST CHARGE
BALANCE PLUS INTEREST
YOUR PAYMENT
REMAINING BALANCE
1-Jan $ $ $ $ $
1-Feb $ $ $
1-Mar $ $ $
1-Apr
1-May
1-Jun
1-Jul
1-Aug
1-Sep
1-Oct
will not be $55
$0.00

70. Remaining Balance Jan 1 – $444.95 Feb 1 - $394.40 Mar 1 - $343.34
April 1 - $291.77
May 1 - $239.69
Oct 1 - $0.00 – Oct “your payment” will be what you actually owe not $55.00