1. Understanding Debt Federally insured by NCUA Great Rates. Personal Service. chevronfcu.org  800-232-8101

2. What is Credit and Debt? Credit means a lender is willing to loan you money— called principal—in exchange for your promise to repay it (usually with interest). Interest is the amount you pay to buy something on credit. The higher the interest rate, the higher your monthly payments. Debt is how much you owe the lender, including all interest and fees. Should you not be able to repay a debt, these lenders may exercise legal claims against your future income to recover the money they’re owed.

3. Using Credit: The Rewards & Risks Rewards: Convenience Protection Emergencies Opportunity to build credit Special offers and bonuses Risks: Interest Fees Overspending Debt

4. Four Types of Debt 1.Credit Cards 2.Student loans 3.Installment Loans 4.Mortgages Unsecured Loans Secured Loans We all take on debt at one time or another in our lives. That’s why it’s important that you understand the different kinds of debt out there.

5. Four Types of Debt 1. Credit Cards -No payoff deadline -Monthly minimum payments vary depending on balance and Annual Percentage Rate (APR), which can be either a fixed or variable rate. -Usually the highest interest rate of these four types of debt.

6. 2. Student Loans -Used for educational expenses. -Some loan programs offer deferred payments until after graduation -Loan term is usually up to 10 years. Monthly payments are adjusted annually when interest rates are adjusted. -May provide an income tax break on interest paid to lender Four Types of Debt (cont.)

7. 3. Installment Loans -Typically used for large purchases such as cars or appliances. -Loan terms can vary from a few months to several years. -Monthly payment amounts are set for the life of the loan.

8. 4. Mortgages -Used specifically to purchase real estate. -Loan terms vary. Payments may be set for the life of the loan (fixed rate) or may change more frequently (adjustable rate). -May provide an income tax break on interest paid to lender. Four Types of Debt (cont.)

9. The Cost of Using Credit Unsecured loans -Annual Fee: Yearly fee for having credit available -Credit Limit: Maximum amount of credit a lender will extend. -Over Limit Fee: Fee/penalty for going over your credit limit. -Grace Period: Length of time before you accumulate interest. -Finance Charge: Monthly fee for maintaining a balance. -Late Fee: Fee/penalty for not making a payment on time. Before you use credit, it’s important that you understand the associated costs. Here’s what you need to know:

10. The Cost of Using Credit (cont.) Secured Loans Loan Term: Length of time you have to pay off the loan. Origination Fee: Charge for setting up the loan (usually for mortgages). Grace Period: Length of time to make payment for a late fee is assessed.

11. The Cost of Using Credit (cont.) Did You Know? There is no federal limit on the interest rate a credit card company can charge.

12. The Cost of Using Credit (cont.) Universal Default –You may have heard the term Universal Default used before, but what does it mean? –In short, Universal Default is a practice in which lenders agree to change the terms of a loan from the normal terms to the default terms. Credit card companies tend to apply Universal Default when they are informed that their customer has defaulted with another lender or has generally taken on too much risk. –If you experience Universal Default, a lender may increase your rates even if you have never made a late payment with this lender.

13. Running the Numbers APRLength of Loan Monthly Payment Total Finance Charge Total of Payments Creditor A14%3 Years$205.07$1,382.52$7,382.52 Creditor B14%4 Years$163.96$1,870.08$7,870.08 Creditor C14%4 Years$166.98$2,015.04$8,015.04 Let’s say you want to purchase a car for $7,500. You put $1,500 down and decide to finance the remaining $6,000 by taking out an auto loan.

14. Running the Numbers Let’s say you want to purchase a $2,000 flat screen TV on your new credit card. APRBalanceMin. Pay (2%) 18% (0.05% per day) $2,000$40/month Min. Pay (2%)Interest (18% APR)$ Toward Principal $40$30$10 If you choose to pay the minimum monthly payment, it will take you more than 30 years to pay off this debt. What’s more, pay almost $5,000 in interest!

15. Federally insured by NCUA Great Rates. Personal Service. chevronfcu.org  800-232-8101