1. Chapter 6: Credit Cards

2. Objectives Understand the difference between single purpose and multi-purpose credit cards. Understand who gets credit and how to get it.  Determine the difference of secure and unsecure lines of credit.

3. Terms Credit card- small, plastic card approximately 2” by 3 ½” that identifies the holder and extends to the cardholder an unsecured line of credit Credit limit- maximum charge limit of purchases on a credit card Grace periods- time you have to pay the bill before a finance charge is added

4. Terms Secure loan – like a mortgage or a car loan. If payment is not received, then the lender may take possession of the car or house. Unsecure loan – a loan that is backed by only a promise to repay.

5. Categories of cards I Single Purpose Cards  Example: gas station cards  No fee for this kind of card, and the card allows for purchases or obtain services at a store, station or company that issued it.  Encourages to buy exclusively from the issuing company.

6. Categories of cards II Multi Purpose, Travel, Food, and Entertainment cards  Example: American express  Charges annual membership fee.  These cards provide a variety of services that some credit cards do not provide, such as guaranteed check cashing at hotels and airline counters, free travel insurance and emergency card replacement.  Usually no credit limit

7. Categories of cards III All-purpose bank credit cards  Example: Visa, MasterCard, and Discover  Usually no annual membership fee.  Widely accepted.  Cardholders are covered by Regulation Z (regulation in which the truth in lending act is enforced) → protects consumers in cases of error, if merchandise is not received, or if services are not rendered.  instant cash up to a limited amount at the bank, credit union or 24hr teller facility.

8. Categories of cards IV Debit Cards  Electronic checks  Enable cardholders to use their ATM cards to pay for purchases at local stores.  The purchase is deducted directly from the cardholder’s checking account

9. Disadvantages of Credit Cards Encourages to overspend to a charge beyond their income and ability to pay. Not the same impact as paying cash → you may forget how much you spent. Security → anyone can know your credit card number because it is easily obtainable. Credit cards can be stolen.

10. Who Gets Credit? You must be 21 or older to get your own credit card. Your credit history is a prime determinant as to weather or not you will be eligible to receive a credit card. Your income is a prime determinant for obtaining a credit card.

11. When to STOP using your Credit Card You use the card as an excuse to overspend. You frequently buy things impulsively that you do not need. You are often late making schedule payments. You have no steady income.

12. Rules for Using Credit Cards Consider every charge purchase as though you were paying cash. Do not spend more than 20% of your take-home pay on credit payments. At the beginning of each month, set a limit on the total amount of charges you will be able to repay easily. Keep your receipts until you receive your statement to verify your spending with the statement.

13. Consumer Rights Fair Credit Reporting forbids credit agencies from giving out incorrect credit information about consumers.

14. Consumer Rights Fair Credit Billing Act Consumers can preserve their credit ratings while settling disputes with stores and credit card companies.

15. Consumer Rights Equal Credit Opportunity Act Prevents discrimination on the basis of sex, marital status, race, color, religion, age, or national origin.

16. Law states creditors cannot: Deny credit on basis of sex, marital status race, color, religion, age or nation origin. Deny credit because an applicant receives any income from a public program. Ask questions concerning birth control practices and plans for children, or assume that female applicant is likely to become pregnant and have an interruption of income.

17. Law states creditors cannot: Ask about applicant’s marital status. Refuse to consider part-time income of a working spouse, alimony, child support, or Social Security payments. Cancel a divorced or widowed person’s credit when a marriage ends unless the income has dropped so much that the person may not be able to pay.

18. How to Protect Your Credit Cards Destroy any cards that you do not use Make a list of all the credit cards that you have and keep it at home. Be sure that you get your card back every time you use it. Do not leave your credit cards in the glove compartment of your car or your drivers license. Do not underestimate the value of a credit card.

19. Regaining Financial Stability Objectives: Discover what happens to debtors who cannot pay their debts. Recognize the signs of carrying too much debt. Learn methods to safely get out of debt. Calculate percent of take-home pay that is used for credit payments

20. Fair Debt Collection Practices Act Threatening violence, using obscene language, publishing shame lists of debtors, and making harassing phone calls at night. Calling a debtor at work or contacting a debtor's employer. Claiming the collector is from a state or federal agency or is a government official.

21. Fair Debt Collection Practices Act Revealing the existence of a bad debt to third parties such as neighbors or employers. Using false or deceptive means to obtain information about a debt

22. Creditors and how they collect Judgement - Court ordered payment. Lien - The note becomes attached to debtors house or business. Garnishment - Court can order a portion of debtor's salary to be paid directly to the creditor.

23. DEBTOR'S PROFILE Young family with more than the average number of children but only an average income. Parent or Parents are carefree. Impulsive and irresponsible. Family does not read much. TV influences their buying habits. The family moves more often than the avg. family.

24. DEBTOR'S PROFILE Parent(s) blame their situation on "unavoidable circumstances" and do not take responsibility for their problems. Single adult as the head of the household. Lengthen the repayment periods on your installment loans and make smaller and smaller down payments.

25. DEBTOR'S PROFILE The balance on your credit cards keeps going up and up. New bills come before old bills get paid. More and More of your income goes to paying off debt. You are taking cash advances on your credit card to pay for food and utilities.

26. Solutions to Debt Problems Rule # 1: Don’t go over your head into debt. Rule # 2: Don’t go over your head into debt. Rule # 3: If you are thinking about going over your head into debt, SEE RULE # 1!!!!!!

27. If you go over your head into DEBT Go to a bank and ask for credit counseling – DON’T TELL THEM THAT YOU WERE MY STUDENT. Banks can put you in debt, and they will also help you restructure your debt so that you can become credit healthy once again. It is better to seek their advice before too many wolves are at your door.

28. If you go over your head into DEBT Wage Earner Plan aka Chapter 13 - this is an alternative to declairing bankruptcy. If you go chapter 13, your debts are not wiped out, rather a judge will decide how much of your salary will go to satisfy your creditors and you will not get anymore credit until your debts are paid off.

29. If you go over your head into DEBT Bankruptcy - Straight bankruptcy is called liquidation bankruptcy. All your assets are sold off and as much of your debt is paid. The remaining debt is wiped out and you start all over again.