1. Chapter © 2010 South-Western, Cengage Learning Responsibilities and Costs of Credit 18.1 18.1Using Credit Wisely 18.2 18.2Costs of Credit 18

2. © 2010 South-Western, Cengage Learning SLIDE 2 Chapter 18 Responsibilities of Consumer Credit You have responsibilities to yourself. You have responsibilities to creditors. Creditors have responsibilities to you.

3. © 2010 South-Western, Cengage Learning SLIDE 3 Chapter 18 Responsibilities to Yourself Use credit wisely and do not get into debt beyond an amount you can comfortably repay. Comparison shop and avoid impulse buying. ClipClip Enter into each transaction in good faith and with full expectation of meeting your obligations and upholding your good credit reputation

4. © 2010 South-Western, Cengage Learning SLIDE 4 Chapter 18 Responsibilities to Creditors When you open an account, you are pledging your honesty and sincerity in the use of credit. Some of your responsibilities are: Limit your spending Make payments Read and understand terms Contact creditor to resolve problems

5. © 2010 South-Western, Cengage Learning SLIDE 5 Chapter 18 Avoiding Unnecessary Credit Costs Accept only the amount of credit that you need. Unused credit can count against you. Unused credit is the remaining credit available to you on current accounts. Make more than the minimum payment. Do not increase spending as income increases. Keep your credit accounts to a minimum. Pay cash for small purchases.

6. © 2010 South-Western, Cengage Learning SLIDE 6 Chapter 18 Avoiding Unnecessary Credit Costs Understand the cost of credit. Shop for loans. Take advantage of credit incentive programs. With a rewards program, you will receive a payback in the form of points that can be redeemed for merchandise or airline tickets. With a rebate plan, you get back a portion of what you spent in credit purchases over the year. (continued)

7. © 2010 South-Western, Cengage Learning SLIDE 7 Chapter 18 Simple Interest Formula The cost is based on three elements: A loan’s principal is the amount borrowed, or the unpaid portion of the amount borrowed, on which the borrower pays interest. The rate is the percentage of interest you will pay on a loan. Time is the period during which the borrower will repay a loan; it is expressed as a fraction of a year. (continued)

8. © 2010 South-Western, Cengage Learning SLIDE 8 Chapter 18 Annual Percentage Rate Formula APR  2  n  f P (N  1) Where: n=number of payment periods in one year f=finance charge P=principal or amount borrowed N=total number of payments (continued)

9. © 2010 South-Western, Cengage Learning SLIDE 9 Chapter 18 Credit Card Billing Methods Adjusted balance method – lowest Finance charge Average daily balance method Previous balance method – more expensive Two-cycle billing -- most expensive; AVOID