Presentation on theme: "Bellwork When do you think it is appropriate to use a credit card?"— Presentation transcript:
1 Bellwork When do you think it is appropriate to use a credit card? When do you think it is not appropriate to use a credit card?Why do you think people get into so much financial trouble using credit cards?
2 Bellwork1. Where do we draw the line for public responsibility versus personal responsibility? (think taxes)2. Should the government pay for health care, education, and income for the unemployed, or is it the citizen’s responsibility to pay for those services??Did you know? American Airlines saved $40,000 in 1987 by eliminating one olive from each salad served in first class
3 What do you Think?Nearly ____% of teens owe money to either a person or company, with an average debt of $____About ___% of teens age already have mor than $1000 in debt_____% of teen say they understand how credit card interest and fees work______% of teens say they know how to establish good credit
4 AnswersNearly __33__% of teens owe money to either a person or company, with an average debt of $_230___About _26__% of teens age already have mor than $1000 in debt_30____% of teen say they understand how credit card interest and fees work__36____% of teens say they know how to establish good credit
5 What is credit and debt?Credit is when someone is WILLING to loan you money in return for interest paid.Debt is the ENTIRE amount of money you owe to lenders.Interest is the amount you pay to use someone else’s money.For example: I’ll loan you $5, but you need to give me $1 in interest for loaning you the money. In total, you will get your $5 back, and $1 in interest= $6.ASK STUDENTSHas 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, ASKWould you like to have a credit card?How would you use it?4-A
6 CreditThe best part of using a credit card is being able to buy something NOWBut, you have to remember that the credit card company will expect payment back PLUS INTEREST.
7 Types of Credit #3Credit card (gas company, department store, grocery store)Installment loan (car, appliance, etc)Student loanMortgage (home loan)4-B-24-B-14-B-312
8 What are some benefits of using credit? YOU CAN BUY SOMETHING NOW!ProtectionEmergenciesOpportunities to Build CreditSpecial offersBonusesConvenience4-C-1of14
9 What are some disadvantages (risks) of using credit? (#9) InterestOverspendingDebtIdentity theft
10 The Language of CreditUniversal 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.4-C-4of44
11 The 4 C’s of creditCollateral: this is an asset that lenders can take from youCapital: lenders like knowing you have personal items of valueCapacity:Are you able to repay the loan?Character: Are you trustworthy?
12 The Language of CreditCredit 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.4-C-3of34
13 How Credit Scores Are Determined Your payment historyInformation about how you make your payments on credit cards, store accounts, car loans, finance companies, mortgagesAccounts in collection or past due, and how long past dueInformation in public records, such as bankruptcy, judgments, liens, wage attachments or child supportYour credit score does change over time as you are carefully, or not carefully using credit4-M-1123
14 How Credit Scores Are Determined Your overall debtHow much you owe on all your accountsHow much credit you have available to useYour credit account historyWhen you opened and used each of your accountsHow recently you applied for new creditRecent good credit history following past payment problems4-M-2123
15 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
16 Credit ScoreWho looks at your credit score? Land lords, employers, lendersWhat if you have a low credit score?You may not be able to get a loanYou may not be able to rent an apartment or houseYou may not get a jobYou may not get a credit cardYou may have to pay a higher interest rate and pay more fees if you ARE approved for a loan or credit card
17 Bankruptcy #18Chapter 7: allows you to erase most of your debt (to qualify you typically must be unemployed or have a very low income. You must also undergo financial counseling)Chapter 13: Allows you to repay many of your debts over a period of time, usually no more than 5 years.
18 A few other things…The longer you have a loan (any loan), the more expensive it will beThe maximum amount you should go towards any loan is 20%How can you reduce your debt? Make regular minimum payments until the balances are paid off.Debt is not necessarily bad4-E
19 Acts…Fair Debt Collection Act- Creditors are allowed to hire a collection agency to collect what you owe, call any co-signer of a loan, send you a notice of what you owe.Truth in Lending Act- Lenders have a right to know why they were turned down for a loan
20 The Cost of Using Credit $300 for a CD PlayerAnd it will take 3 years and8 monthsto pay off!APR = 24%Minimum Payment of 4% or $12Finance Charge $149.99Your CD player REALLY cost $449.99After you’ve made the last payment, will your CD player still be around???4-H1
21 The Cost of Using Credit Interest Rate = 24%Minimum Payment = 4%BALANCETIME TO PAY OFFINTEREST CHARGEDTOTAL COST$2,00011 YEARS5 MONTHS$1,850$3,850$4,00014 YEARS4 MONTHS$3,850$7,850$6,00016 YEARS$5,850$11,8504-I123
22 The Cost of Using Credit $3,000 Charged to Credit AccountYou Owed $3000butYou Paid$5936APR = 21%Minimum Payment of 4% or $120Finance Charges $2,220.56Annual Credit Card Fee: $65Paying the minimum, it will take you 11 YEARS and 10 MONTHS to pay off your debt.4-J1