Personal Financial Literacy: Personal Debt Essential Question: How can creating and managing a budget help someone make better financial decisions?

Personal Debt Your debt is the money you owe to creditors. People build debt by taking loans for homes, cars, education, starting a new business, etc. People also build debt when making purchases with credit cards. Buying on credit is like taking a small loan. Every loan will include interest. Banks and credit card companies charge interest on loans in order to make money. Different kinds of loans have higher interest rates, especially credit cards. The higher the interest rate, the more money you end up paying back.

Personal Debt Cont’d Building debt is not always bad. Most people will need to take a loan of some kind during their lives. Banks are more willing to offer loans, or low interest rates, to people with a good credit history/credit score. You can build a good history/score by paying back your debts on time or early. - Credit cards only help your score if you pay back the money quickly. - You can also build credit by having bills and utilities in your name and paying them on time every time.

Advantages & Disadvantages of Debt Able to buy needed items now Don’t have to carry cash Creates a record of purchases Consolidates bills into one payment Disadvantages Interest May require additional fees Financial difficulties may arise if one loses track of how much has been spent each month Increased impulse buying may occur

Your Responsibilities Borrow only what you can repay Read and understand the credit contract Pay debts promptly Notify creditor if you cannot meet payments Report lost or stolen credit cards promptly Never give your card number over the phone unless you initiated the call or are certain of the caller’s identity

Reading a Credit Card Statement

Building a Credit History Establish steady work Pay all bills promptly Open a checking account and don’t bounce checks Open savings account and make regular deposits Apply for a local store credit card and make regular monthly payments Apply for small loan using your savings account as collateral Get co-signer on a loan and pay back the loan as agreed