1. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Using Credit #6

2. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Q. 1. Why do we use “Credit?”

3. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Basic Concepts of Credit Why we use credit Avoid paying cash for large outlays

4. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Basic Concepts of Credit Why we use credit Avoid paying cash for large outlaysMeet a financial emergency

5. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Basic Concepts of Credit Why we use credit Avoid paying cash for large outlaysMeet a financial emergencyConvenience

6. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Basic Concepts of Credit Why we use credit Avoid paying cash for large outlaysMeet a financial emergencyConvenienceInvestment purposes

7. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2. What are the improper uses of credit?

8. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Improper Uses of Credit Meet basic living expenses

9. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Improper Uses of Credit Meet basic living expensesMake impulse purchases

10. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Improper Uses of Credit Meet basic living expensesMake impulse purchasesPurchase non-durable goods

11. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Important Articles Credit Card Myths – 8 myths about settling credit card debts 8 myths about settling credit card debts Bad Credit Card habits – http://www.creditcards.com/credit-card-news/7-bad-credit-card- habits-to-break-1267.php?aid=7704c6a5 http://www.creditcards.com/credit-card-news/7-bad-credit-card- habits-to-break-1267.php?aid=7704c6a5 Credit Limit – How to blow your credit without spending How to blow your credit without spending Advice on Spending – Hair-rising money tales Hair-rising money tales

12. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3. What are the steps in establishing “good” credit?

13. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1. Establishing Credit Open checking and savings accounts Get one card and make small purchases

14. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2. How Much Credit Can You Stand? Monthly consumer credit payments (excluding mortgage) should not exceed 20% of monthly net income. Debt Safety Ratio = Monthly consumer credit payments Monthly take-home pay

15. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 4. What are the advantages and disadvantages of credit cards?

16. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Advantages A basic need in today’s society

17. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Advantages A basic need in today’s societyConvenience

18. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Advantages A basic need in today’s societyConvenienceItemized details of your expenses

19. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Advantages A basic need in today’s societyConvenienceItemized details of your expensesSource of funds for emergency

20. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Advantages A basic need in today’s societyConvenienceItemized details of your expensesSource of funds for emergencyDebt consolidation

21. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Advantages A basic need in today’s societyConvenienceItemized details of your expensesSource of funds for emergencyDebt consolidationReward Points

22. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Disadvantages Too easy to spend

23. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Disadvantages Too easy to spendLose track of spending

24. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Disadvantages Too easy to spendLose track of spendingPaying off the interest

25. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Disadvantages Too easy to spendLose track of spendingPaying off the interestObligating future income

26. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5. What are the two types of open credit accounts?

27. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Open credit accounts Bank credit cardsRevolving credit lines

28. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 6. What are the basic features of a bank credit card?

29. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Bank Credit Cards Most popular open account credit Line of credit depends on applicant’s financial status and ability to pay Cash advances and balance transfers Interest rates and fees

30. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Other Fees High interestPrime rate + a percentageAnnual feesTransaction feesLate-payment feesOver-the-limit feesBalance transfer feesForeign transaction fees

31. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 7. What are the special types of bank credit cards?

32. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Special Types of Bank Credit Cards Reward cardsFrequent flyer programsAuto rebate programsOther merchandise rebatesAffinity cardsSecured credit cardsStudent credit cards

33. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Revolving Credit Lines Open account credit offered by banks or other financial institutions Usually offer higher credit lines and lower interest rates than credit cards Access money by writing checks

34. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8. What are the forms of revolving credit lines?

35. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Forms Of Revolving Credit Overdraft protection linesUnsecured personal credit linesAvailable on as-needed basisHome equity credit linesSecured by equity in owner’s home Interest tax deductible (if deductions are itemized)

36. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 9. What are the steps in managing your credit?

37. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1. Opening an account Steps in opening an account: 1. Credit card application2. Credit investigation3. Credit bureau

38. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2. Computing Finance Charges Truth in Lending Act: Lenders must disclose Annual percentage rate (APR) – true rate of interest over life of loan – includes all fees and costs Method used in computing finance charges

39. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3. Managing Your Credit Cards Review statements monthly to verify entries Pay by due date – minimum monthly payment – entire amount to avoid finance charges

40. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. What are the steps in using your credit wisely?

41. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1. Shop Around for the Best Deal Annual fees Rate of interest charged on balance Length of grace periodMethod of calculating balances

42. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2. Avoiding Credit Problems Use discipline when purchasing Reduce number of cards Be selective in accepting preapproved credit Limit new charges Pay more than the minimum Pay off cards with highest finance charges first Transfer balances to card with lowest rate

43. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3. Credit Card Fraud Don’t give account number to organizations who call you Use secure internet sites Never put credit card info on checks Destroy old cards and shred old statementsReport lost or stolen cards immediately

44. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 4. Bankruptcy – Paying the Price for Credit Abuse File Bankruptcy Chapter 13 - wage earner plan -- debt restructuring Chapter 7 - straight bankruptcy -- wipe the slate clean In 2010 over 1.5 million people filed for personal bankruptcy Use credit counselors!