Objective: Compare and contrast debit and credit 5.4 – Credit v. Debit Objective: Compare and contrast debit and credit

II. Credit v. Debit A. Credit: spending $ that you don’t have (borrowing) 1. Interest: Paying extra $ for borrowing

a. Annual Percentage Rate (APR): shows you how much your borrowing will cost you over a year. (1). This can help you decide which credit card is best for you

B. Types of Credit 1. Credit Card: can borrow a certain amount of $ to spend 2. Student Loan 3. Car Loan 4. Mortgage (Home Loan) a. Foreclosure: loosing your home because you do not pay your mortgage

Is Establishing Credit Necessary? YES!!! In the 21st century you need to establish credit if you want to do the following things… Buy a Home Buy a Car Receive a good interest rate on a loan Having a good credit score shows lenders that you are reliable and will pay them back

C. Est. Good Credit 1. Credit Score: a number assigned to a person that lets lenders know your ability to pay back a loan

2. To est. good credit you must start buying things using credit and pay that money back in a timely manner. Helpful tips… Have bills in your name Always pay bills on time or earlier and try to pay more than the minimum payment Keep a steady job Don’t move often Keep your debt low Use your cards responsibly Stick to a budget

3. Credit Line: how much money is available for borrowing 4. Financing: borrowing money to pay for an item you will pay off over time 5. Debt: money that you owe someone (person/business/organization) else

Comparing Credit & Debit Card Type Pros Cons Debit Card You don’t have to carry cash/checkbook It’s safe b/c only you know your PIN You are using the $ you actually have which can help with budgeting You must have enough $ in your account to make purchases You have to remember your PIN to access cash If you don’t keep track of your purchases, you could overdraw and have to pay a fine

Credit Card Card Type Pros Cons You can buy things before you have saved the entire purchase price It is a way to pay for emergency expenses Using it wisely and paying off on time can help you improve your credit score You may have to pay a yearly fee for the card You pay interest on the unpaid monthly balance. This means paying more for items than they really cost!