1. Going Into Debt Chapter 4 - Economics

2. What is Credit? Receiving Funds to buy goods with the promise to pay funds back Allows middle class to purchase items without having to wait for later

3. Why Do People Go Into Debt? “Impulse Buying” – Do not want to wait until they have the $ to buy item Spread payments over period of time Buy durable goods and spread the $ over time period in order to enjoy the purchase now – Installment Debt!

4. Where Did the Idea of credit Begin? Started centuries ago Early forms of credit similar to a monthly charge account, where account was paid in full Onslaught of WWII more or less put a ban on credit in this country. Following the war, economy boomed and the desire to buy and use credit escalated!

5. Borrowing on Credit Principal – Amount of $ originally owed Interest – $ the borrower must pay for the use of someone else’s $ $2.5 TRILLION Consumer debt Avg. = $8100 per person

6. Most Common Types of Debt Installments – Payments made over a set period of time – Used in purchasing large durable goods: cars, appliances The longer the pay period, the smaller the payment…. The longer it takes to pay off.. The larger the interest! http://www.bankrate.com/calculators/mortgages/lo an-calculator.aspx http://www.bankrate.com/calculators/mortgages/lo an-calculator.aspx Mortgages most common installment plan – Fannie Mae (Nation’s largest provider)

7. To Borrow or Not To Borrow?? Does the purchases outweigh the interest? Cost vs Benefits? Comparison shop for credit Can I afford to borrow right now?

8. Sources of Loans and Credit Section 2 – Chapter 4

9. Different Types of Lending Agencies Commercial Banks Savings and Loans Savings Banks Credit Unions Finance Companies

10. Charge Accounts Allows customer to buy goods then pay for them later – Regular – Revolving – Installment

11. Credit Cards Basically a charge account Gives customer access to a loan all of the time! First Credit Card 1958 Bank of America- $9 million loss!

12. Credit Card Charges Finance Charge – Membership fees Annual Percentage Rate (APR) – Credit over a year expressed as a percentage

13. Did You Know? 75% of college students carry and use at least 1 credit card / 25% say they obtained their first card while still in high school College students carry an average of $1,843 in credit card debt One study indicated that 20% of college students have a credit card debt of $10,000!

14. What if ……… You had a $1000 balance on your credit card at 21% interest…. How long would it take to pay it off if you paid minimum monthly payment of $35? Answer …….4 years! Disclosure Laws!

15. Debit Cards “Newest credit phase” Allows for transfer of funds from checking directly to store Allows for cashless purchases

16. Applying for Credit Chapter 4 – Section 3

17. The 5 C’s of Credit……….. Creditworthiness Your Credit Rating Your Character Your Collateral Common Sense

18. Creditworthy? 3 Things They Consider……….. Your ability to hold a steady job Your character What type of collateral do you hold? – Credit Bureau conducts a Credit Check This leads to your credit rating

19. Secured vs Unsecured Loans Secured loan – Backed with collateral Unsecured loan – Borrower promises to repay the loan – Riskier – Co-signer

20. Government Involvement and Debt Chapter 4 – Section 4

21. Ways that the Government protects the consumer. Truth in Lending Act Equal Credit and Opportunity Act State Usury Laws – Limits Amount of Interest that can be charged – Illinois Does not have Usury Laws!

22. Filing for Bankruptcy “Inability to pay off debts” Handled through Federal Bankruptcy Courts Debtors have to give up what they own, liquidated to creditors…. Taxes must still be paid Remains on your credit history for 10 years – Chapter 7 and Chapter 13 Bankruptcy