1. Chapter 7 Choosing a Source of Credit: The Cost of Credit Alternatives

2. Kinds of Loans Inexpensive Inexpensive Parents or family members Parents or family members Borrowed on financial assets Borrowed on financial assets U.S. Department of Education U.S. Department of Education Medium-priced Medium-priced Commercial banks Commercial banks Savings and loan associations Savings and loan associations Credit unions Credit unions Expensive Expensive Finance companies Finance companies Retailers Retailers Credit cards Credit cards Tax refund Tax refund

3. Cost of Credit Finance charge—the total dollar amount you pay to use credit Finance charge—the total dollar amount you pay to use credit Annual percentage rate (APR)— percentage cost of credit on a yearly basis Annual percentage rate (APR)— percentage cost of credit on a yearly basis

4. Credit Trade-offs Term versus interest costs Term versus interest costs Lender risk versus interest rate Lender risk versus interest rate Variable interest rate Variable interest rate Secured loan Secured loan Up-front cash Up-front cash Shorter term Shorter term

5. Interest Interest = Principle x Rate x Time Interest = Principle x Rate x Time Simple interest Simple interest Simple interest on the declining balance Simple interest on the declining balance Add-on interest Add-on interest Open-end credit interest Open-end credit interest Adjusted balance method Adjusted balance method Previous balance method Previous balance method Average daily balance method Average daily balance method

6. Other Considerations Tax deductions Tax deductions Minimum monthly payment trap Minimum monthly payment trap Rule of 78s Rule of 78s Credit insurance Credit insurance

7. Frequent Reasons for Indebtedness Emotional problems Emotional problems The use of money to punish The use of money to punish The expectation of instant comfort The expectation of instant comfort Keeping up with the Joneses Keeping up with the Joneses Overindulgence of children Overindulgence of children Misunderstanding or lack of communication among family members Misunderstanding or lack of communication among family members The amount of the finance charges The amount of the finance charges Check out danger signals on p. 227 Check out danger signals on p. 227

8. Credit Counseling Consumer Credit Counseling Service (CCCS) provides debt counseling services for families and individuals with serious financial problems Consumer Credit Counseling Service (CCCS) provides debt counseling services for families and individuals with serious financial problems

9. Personal Bankruptcy Chapter 7 (straight bankruptcy) Chapter 7 (straight bankruptcy) Many, but not all, debts are forgiven Many, but not all, debts are forgiven Read detailed description on p. 233 Read detailed description on p. 233 Chapter 13 (wage earner plan) Chapter 13 (wage earner plan) A voluntary plan that a debtor with regular income develops and proposes to a bankruptcy court A voluntary plan that a debtor with regular income develops and proposes to a bankruptcy court Read detailed description on pp. 233-234 Read detailed description on pp. 233-234 Costs include court costs, attorneys’ fees and trustees’ fees and costs Costs include court costs, attorneys’ fees and trustees’ fees and costs