Welcome Back. Week at a Glance Ch Welcome Back! Week at a Glance Ch. 2 Savings – Fill in the blanks Introduction to CREDIT Turn and Talk – Ask a classmate “What will be your first three debt” purchases? End of hour: Check your grades

Different Strategies / Goals Traditional “Normal” Dave Ramsey Good Debt / Bad Debt Everybody has it Types of Loans Cost of Borrowing Credit Cards FICO (Credit Score) You do not need to use credit Pay cash Save until you can afford You do not have to build a credit rating (FICO) The credit is a product, marketed for a profit Chapter 18

Credit gets you a Loan which puts you in Debt TODAY: Remember…. What is Credit? NOTES on the back of your lesson plan… Dave’s side: FOUNDATIONS book  page 76-81 Tomorrow: Gay Pustaver, Money Management Counselor Credit is the GRANTING of a LOAN to go into DEBT. Good Credit Rating = lower down payments & lower interest rates. Loans: Principal + Interest Debt is your obligation to pay LOANS are … Bank Installment Loans Credit Cards (Revolving) “Bills” (Regular / Budget) Chapter 18

TYPES OF CREDIT Sales credit (Credit Cards) Consumer Loan credit Installment Loans – Secured (Collateral) (Like for cars, houses, etc.) Single Payment Loans – Unsecured/Secured Trade credit (Used by businesses)

Consumer Credit Credit Fundamentals Uses of Credit – GOOD credit / BAD credit Cost of Credit – Interest, Fees, etc. Credit Applications and Documents Credit CARD Act of 2009 Protection of your Credit Rights

The 3 C’s of Credit Character – who are you? Capacity – Stable? Job Jumper? Criminal Record? Capacity – What’s your income? What are your debt obligations already? Do you have a positive cash flow? Collateral – what do or will you have of value to secure this loan Chapter 29

BENEFITS OF CREDIT Convenience Immediate possession Savings (Great deals!) Credit rating Useful for emergencies Chapter 29

CREDIT CONCERNS Overbuying Careless buying Higher prices (because you don’t pay off the loan/card and pay finance charges on your purchases) Overuse of credit – Getting in over your head! Chapter 29

All kinds of CHARGE ACCOUNTS ! ! ! Consumer Loans All kinds of CHARGE ACCOUNTS ! ! ! Regular accounts (Doctors, Dentists, Plumbers) Budget accounts (Utilities, Insurance, etc.) Revolving accounts (Credit Cards) Credit limit Monthly Payments Finance charges Buy Stuff…Pay Debt…Buy Stuff…Pay Debt Chapter 30

CREDIT CARDS Bank cards (VISA, MasterCard, Discover) Consumer Loans CREDIT CARDS Bank cards (VISA, MasterCard, Discover) Travel and entertainment cards (AmExpress) Oil company cards (BP gas) Retail store cards (Younkers, Kohls, etc.)

Consumer Loans INSTALLMENT CREDIT Signing a sales contract that shows the terms of the purchase Receiving the purchased item at the time of the sale Making a down payment Paying a finance charge on the amount owed Making regular payments at stated times

Secured Loans Auto Loans Mortgage Home Equity (2nd Mortgage) $200,000 home – OWE $120,000 $80,000 in EQUITY in the home Borrow up $40 - $60,000 BACK on the mortgage = Home Equity loan Chapter 18

What are INTEREST rates? YouTube 7minutes CHAPTER 18 5/13/2018 What are INTEREST rates? YouTube 7minutes EARN or PAY? Debt=PAY TODAY Interest  Finance Charges Annual Percentage Rate (APR) PAY: Auto: 3.25%-4% Mortgage: 3%-4% Credit Cards: 13%-28% Oprah’s Debt Diet In review…and the Eggleston’s $43,521 in CREDIT CARD DEBT Deadline for make-up work … Jan-February checking transactions. Interview your parents

FINDING INTEREST Principal, P Amount of the loan Interest Rate, R Percent of interest charged or earned Time, T Length of time for which interest will be charged, usually expressed in years or parts of a year

SIMPLE INTEREST Interest  Principal  Rate Time I  P  R T

SIMPLE INTEREST EXAMPLES  P  R T One year $100 .12 1 $12 Two years 2 $24 One month 1/12 $1 60 days 60/360 $2

Credit Application and Documents Personal Finance Statement Your assets, liabilities and equity Credit bureau report: Equifax, Trans Union, Credit Score Chapter 32

Credit Card Statements (Witte’s C1) Credit Memo – returned something? Keep the credit slip until it “posts” Debt Consolidation Throw it all into one bucket and make one payment. Chapter 18

Schumer Box – Good News Bad News Handout APR on Cash Advances (higher rate) Defaults on payments (higher rate) Grace Period Late Payment Fees NSF Fees Over the Credit Limit Fees Annual Fees Chapter 18

Questions to ask yourself before using credit… How will I benefit from this use of credit? Is this the best buy I can make or should I shop around? What will be the total cost of my purchase, including the finance charges? What would I save if I paid cash? Will the payments be too high for my income? Chapter 29

CREDIT SCORES How it all starts: Loan Approvals Loan RATES Checking Account “Life Bills” Job History Why it’s Important Loan Approvals Loan RATES Loan “down payments” JOBS! (Some employers check credit scores before hiring) When does it start? Right now…

USING CREDIT Credit – Money you borrow (principal) Debtor – Who OWES the money Creditor – Who LENT the money

Cost of Credit Goals Calculate interest in consumer credit situations. Explain finance charges when using credit. Chapter 31

Amortization Schedules Chapter 18

And now….. 12 Credit Cards totaling Remember….. TEST tomorrow! over $43,000 Remember….. TEST tomorrow! Use your “book” Study your STUDY guide Oprah: How to Play the Credit Card Game

>> C H E C K P O I N T What are potential drawbacks of buying on credit?

>> C H E C K P O I N T What are the main advantages of using credit? (Going into debt) Chapter 29

>> C H E C K P O I N T What three things are necessary to calculate interest?

>> C H E C K P O I N T What does APR represent?

INSTALLMENT INTEREST Decreasing loan payments Level loan payments Chapter 18

Identify your “WORTH” How do you keep organized? An 8 pocket portfolio Assets – Liabilities = Net Worth What’s your FINANCIAL plan? Developing a FINANCIAL portfolio Debt to Equity Ratio and Debt to Income Ratio (Low is good) How do you keep organized? An 8 pocket portfolio Electronics/Auto/Loans/School/Taxes/ Piles and piles and piles of mail….shoebox? Chapter 18

LEVEL LOAN PAYMENTS Chapter 18

Key Terms credit application credit bureau

CREDIT APPLICATION PROCESS The three Cs of credit Character Capacity (cash flow) Capital (collateral) Credit applications Documenting credit data Actions to establish credit

>> C H E C K P O I N T What are the three Cs of credit?

CREDIT BUREAUS Gather information on credit users Sell information to businesses offering credit, such as banks, finance companies, and retail stores Creates a credit report showing debts owed, how often credit is used, and whether debts are paid on time

Things to do NOW Good grades and attendance Savings Account – Make regular deposits Checking Account – keep it straight! Retail or Bank Credit Card – Small! Employment – Stability

>> C H E C K P O I N T What is the main purpose of a credit bureau?

Key Terms credit counselor (IE: Gay Pustaver) bankruptcy

CREDIT APPLICATION REGULATIONS Truth-in-Lending Law of 1968 Equal Credit Opportunity Act

Credit Card Act of 2009 No more cards for 18-20 year olds! (Unless there’s a cosigner) Can’t raise rates on previous purchases Must apply payments to charges oldest to newest. (NOT to the lowest interest rate purchases) Statements must show “if you only pay the minimum – this is what it will cost you…” Opt In or Out --- You must tell them that you want to OPT OUT of transactions that would put you over your limit! Late Fee Trap – Extends time to pay to at least 21 days.

>> C H E C K P O I N T How does the Truth-in-Lending Law assist consumers?

CREDIT USE REGULATIONS Fair Credit Billing Act Fair Credit Reporting Act

>> C H E C K P O I N T What is the purpose of the Fair Credit Reporting Act?

CREDIT PROBLEMS AND ASSISTANCE Credit Counseling Bankruptcy

Protection of Credit Rights Goals Identify credit application regulations. Explain credit use regulations. Discuss credit problems and available assistance.

>> C H E C K P O I N T What actions can a person take when facing credit problems?