1. Credit Pros and Cons Unit 1 Lesson 4

2. Introduction Credit use carries an important responsibility. Credit use carries an important responsibility. When used responsibly, credit offers several advantages: the freedom of not having to carry large amounts of cash, the opportunity to establish a good credit history, and the ability to track expenditures. When used responsibly, credit offers several advantages: the freedom of not having to carry large amounts of cash, the opportunity to establish a good credit history, and the ability to track expenditures.

3. Introduction Credit can also be a helpful tool when used wisely by smart money managers, but it also has some serious disadvantages. Students need to know that credit is not additional income that allows them to buy more. Credit is a loan that allows people to make purchases while postponing payments, thereby enjoying benefits now and paying later. Credit can also be a helpful tool when used wisely by smart money managers, but it also has some serious disadvantages. Students need to know that credit is not additional income that allows them to buy more. Credit is a loan that allows people to make purchases while postponing payments, thereby enjoying benefits now and paying later.

4. Introduction Also, credit is not free. Extra charges for its use increase the cost of items that are purchased. Before making decisions about the use of credit, students should become well informed about advantages and disadvantages. Also, credit is not free. Extra charges for its use increase the cost of items that are purchased. Before making decisions about the use of credit, students should become well informed about advantages and disadvantages.

5. Using Credit – A Big Decision The decision to purchase an item using credit – borrowing rather than saving and paying cash – is to be taken seriously. How badly do you need the desired item? Is it something that you can live without, or is it a need you must satisfy immediately? Saving requires that you wait, while buying on credit allows you to purchase goods and services now in exchange for a promise to pay later? Cash? Credit? There are advantages and disadvantages to both methods of payment. You need to consider them carefully. The decision to purchase an item using credit – borrowing rather than saving and paying cash – is to be taken seriously. How badly do you need the desired item? Is it something that you can live without, or is it a need you must satisfy immediately? Saving requires that you wait, while buying on credit allows you to purchase goods and services now in exchange for a promise to pay later? Cash? Credit? There are advantages and disadvantages to both methods of payment. You need to consider them carefully. PAGE 17

6. Using Credit – A Big Decision Credit use has many benefits. Credit allows you to buy major items, such as cars and houses, without having to save entire purchase amount. Even though you don’t have enough money to spend, you can enjoy the item now. Credit cards also are widely accepted at a variety of stores, allowing you to buy wherever you are. When using a credit card, you don’t have to carry much cash, which is great if you are traveling. If you see something on sale at a great price but have no cash, you can buy it anyway just by signing your name. Credit use has many benefits. Credit allows you to buy major items, such as cars and houses, without having to save entire purchase amount. Even though you don’t have enough money to spend, you can enjoy the item now. Credit cards also are widely accepted at a variety of stores, allowing you to buy wherever you are. When using a credit card, you don’t have to carry much cash, which is great if you are traveling. If you see something on sale at a great price but have no cash, you can buy it anyway just by signing your name. PAGE 17

7. Using Credit – A Big Decision A credit card allows you to be a telephone or Internet shopper. Buying on credit also permits you to inspect your purchase before it is fully paid for. If something goes wrong with a purchased item, it may be easier to return it when paid for with a credit card. In an emergency, a credit card allows you to respond immediately, even if you have no cash. Another advantage to credit is that it allows you to keep accurate records of your spending and combine multiple purchases into one lump payment. A credit card allows you to be a telephone or Internet shopper. Buying on credit also permits you to inspect your purchase before it is fully paid for. If something goes wrong with a purchased item, it may be easier to return it when paid for with a credit card. In an emergency, a credit card allows you to respond immediately, even if you have no cash. Another advantage to credit is that it allows you to keep accurate records of your spending and combine multiple purchases into one lump payment. PAGE 17

8. Using Credit – A Big Decision There is also a downside to using credit. There are varying fees associated with credit, such as interest, finance charges, and annual fees. All of these add to the real cost purchases. If you buy an item on sale, you must remember that the interest and charges could amount to more than the savings (especially if you don’t pay off the credit card bill each month). There is also a downside to using credit. There are varying fees associated with credit, such as interest, finance charges, and annual fees. All of these add to the real cost purchases. If you buy an item on sale, you must remember that the interest and charges could amount to more than the savings (especially if you don’t pay off the credit card bill each month). PAGE 17

9. Using Credit – A Big Decision Also remember that when charging, you are spending future earnings now, which means you are giving up purchases you may want to make in the future. Perhaps the biggest disadvantage of credit buying, however, is that it encourages impulse buying. If left unchecked, this impulse buying can lead to disastrous problems, such as the repossession of cars and homes when payments aren’t made on time. A poor credit rating can ruin your chances for a future home or a car loan. It can even affect your ability to get a job. Also remember that when charging, you are spending future earnings now, which means you are giving up purchases you may want to make in the future. Perhaps the biggest disadvantage of credit buying, however, is that it encourages impulse buying. If left unchecked, this impulse buying can lead to disastrous problems, such as the repossession of cars and homes when payments aren’t made on time. A poor credit rating can ruin your chances for a future home or a car loan. It can even affect your ability to get a job. PAGE 17

10. Using Credit – A Big Decision Credit can be a tool for successfully managing your money and improving your lifestyle, or it can lead to bankruptcy and financial ruin. Credit reporting agencies keep records on your credit experience. If you are a responsible borrower, you will have a good credit rating. If not, you will have a poor credit rating. Whether to use credit is an important decision. Consider all the advantages and disadvantages to make the best decision. Credit can be a tool for successfully managing your money and improving your lifestyle, or it can lead to bankruptcy and financial ruin. Credit reporting agencies keep records on your credit experience. If you are a responsible borrower, you will have a good credit rating. If not, you will have a poor credit rating. Whether to use credit is an important decision. Consider all the advantages and disadvantages to make the best decision. PAGE 17

11. A Big Decision Allows you to make a purchase now instead of waiting. Allows you to make a purchase now instead of waiting. Allows you to buy major items, such as cars and houses, without having to save the entire purchase amount beforehand. Allows you to buy major items, such as cars and houses, without having to save the entire purchase amount beforehand. Can enjoy goods and services even though you don’t have the money in hand. Can enjoy goods and services even though you don’t have the money in hand. Cards are accepted at a variety of stores, allowing you to make purchases almost anywhere. Cards are accepted at a variety of stores, allowing you to make purchases almost anywhere. You don’t have to carry much cash. You don’t have to carry much cash. Allows for shopping over the telephone and Internet. Allows for shopping over the telephone and Internet. Allows for immediate response or solution in emergencies, even if you have no cash. Allows for immediate response or solution in emergencies, even if you have no cash. Allows you to keep accurate records of your shopping. Allows you to keep accurate records of your shopping. Fees, such as interest, finance charges, and annual fees, add to the real cost of purchases. By charging, you are spending future earnings, which means giving up future purchases you may want to make in the future. Encourages impulse buying, which if left unchecked can lead to disastrous problems, such as the repossession of cars and houses, when payments aren’t paid on time. Can cause poor credit rating if bills aren’t paid on time. A poor credit can ruin your chances for a future home or car loan. It can even affect your ability to get a new job. Advantages Disadvantages

12. Advantages and Disadvantages of Credit Purchase Major Items Purchase Major Items Varying Fees Varying Fees Credit Score Credit Score Spending Future Earnings Spending Future Earnings Accurate Record – Keeping Accurate Record – Keeping Impulse Buying Impulse Buying Widely Accepted At Stores Repossession Easy Returns on Purchases Overspending Immediate Response To An Emergency Identity Theft

13. Advantages of Credit Purchase Major Items Purchase Major Items Credit Score Credit Score Accurate Record – Keeping Accurate Record – Keeping Widely Accepted At Stores Widely Accepted At Stores Easy Returns on Purchases Easy Returns on Purchases Immediate Response To An Emergency Immediate Response To An Emergency Varying Fees Spending Future Earnings Impulse Buying Repossession Overspending Identity Theft Disadvantages of Credit

14. Credit Scenarios With the person sitting at the same table as you read through each scenarios. With the person sitting at the same table as you read through each scenarios. Circle the advantages. Circle the advantages. Underline the disadvantages. Underline the disadvantages. Page 19

15. Summary 1.) Why is more difficult to get out of debt than to get out of debt? 2.) How can interest payments on debt work against you? 3.) How can using credit cause you to overspend? Balance Time to Pay Off Interest Charged Total Paid $1,000 12 years $1,349.97$2,349.97 $2,500 19 years $5,915.53$8,415.53 $5,000 24 years $15,761.21$20,761.21 Using the following credit information to answer the questions below. Interest Rate: 17% Minimum Payment: 2.5% of outstanding balance or $10 per month.