Transcript Financial Literacy Skills Unit 3: Using Credit Wisely Objective 1: Distinguish among types of sales credit. • Installment credit • Regular credit • Open-end credit.

Financial Literacy Skills
Unit 3: Using Credit Wisely
Objective 1: Distinguish among types
of sales credit.
• Installment credit
• Regular credit
• Open-end credit
Objective 2: Identify sources of
credit.
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Commercial bank
Credit union
Finance company
Life insurance policy
Oil company
Online lender
Payday loan company
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Pawnbroker
Private lender
Retail store
Savings and loan
association
• Travel-andentertainment credit
card company
Objective 3: Distinguish between
credit and charge cards.
• Credit card
– Issued by a company such as a bank, gasoline
company, or department store
– May charge an annual fee
– Gives you access to credit up to a certain limit.
– May offer additional benefits
– Monthly statement gives a minimum payment
due; you are charged interest if you do not pay the
balance in full
Objective 3: Distinguish between
credit and charge cards.
• Charge cards
– Issued by a few companies (American Express, Diners
Club)
– Charges an annual fee
– You are charged interest on any unpaid balance
– No credit limit
– Entire balance due when the monthly statement
arrives
– Often offer more benefits than credit cards
– Frequently used by businesses
– Many retailers will accept credit cards but not charge
cards.
Objective 4: Identify disadvantages
and advantages of using credit.
Disadvantages
• Using credit encourages you to spend more than you
can afford, even if you plan to pay off the balance at
the end of the month.
• It may encourage impulse buying.
• Credit ties up future income to pay debt.
• Credit contracts and terms can be difficult to
understand.
• Maintaining a balance, rather than paying off your
credit card every month, increases the cost of items.
Objective 4: Identify disadvantages
and advantages of using credit.
• Low introductory interest rates are temporary, and
increase when payments are missed.
• Using credit can encourage a need for “instant
gratification.”
• Inability to pay your credit card bills contributes to a
poor credit rating.
• Items bought on credit can be repossessed if you
cannot make payments.
• Relying on credit may encourage you to shop only at
stores where you have credit cards.
• Improper use of credit can increase family stress,
including family conflict.
Objective 4: Identify disadvantages
and advantages of using credit.
Advantages
• Credit can allow you to take advantage of bargains.
• Credit allows you to use goods and services while
paying for them.
• Credit cards can be a source of emergency funds.
• Credit allows you to raise your standard of living
Instead of waiting until you have saved enough cash.
• Credit helps you make purchases that are part of a
long-range financial plan.
Objective 4: Identify disadvantages
and advantages of using credit.
• Using credit responsibly establishes your credit
rating.
• Credit card statements and receipts help simplify
record keeping and budgeting.
• Buying items with credit makes returns more
convenient.
• Carrying a credit card eliminates the need to carry
large amounts of cash
• Credit card companies can help in negotiating about
problems with products after the sale.
Objective 5: Match factors that affect
interest rates to their descriptions.
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Ability to repay
Collateral offered
Current rate of interest
Economic conditions
Length of time to repay credit early by making
larger payments with no penalties.
• Source of credit
• Total amount of money borrowed
• Type of credit selected
Objective 6: Calculate the cost of
interest.
Objective 7: Complete sentences
about wise credit practices.
• Limit the total amount borrowed to 20 percent or less
of your yearly take-home pay.
• Limit the total of monthly payments to 10 percent or
less of your monthly take-home pay.
• Buy items that will outlast the credit payment period.
• Make the largest down payment possible.
• Understand how much credit costs.
• Use credit to buy items that increase in value.
• Pay double or a few dollars more on each payment.
• Shop for credit.
• Keep a good credit reputation.
Objective 8: Select ways to establish
a good credit record.
• If you have no credit history yet and cannot get a major
credit card, apply for a department store credit card.
• Show responsibility by using your credit and paying it
off.
• Pay bills when they are due.
• Use credit only if your income is steady and reliable.
• Understand and follow the terms of every credit
contract.
• Do not borrow up to your credit limits.
• Review your credit report regularly
Objective 9: Describe options for
payments on credit cards.
• Pay the balance in full every month.
• Pay the balance in full more often than once a
month.
• Pay more than the minimum payment, but
less than the balance, every month.
• Pay the minimum payment every month.
Objective 10: Calculate credit card
payment options.
Objective 11: Match factors used to
determine credit risk to their
descriptions.
• Payment record
• Employment record
• Certain personal factors
Objective 12: Discuss the
consequences of bankruptcy.
• The petition for bankruptcy becomes part of
your permanent credit record for ten years.
• Your property and possessions (within limits)
are seized and sold.
• Monies received are applied to each of the
debtor’s financial obligations.
• Once granted bankruptcy, you cannot file
again for another seven to ten years, and will
have difficulty obtaining credit in the future.
Objective 13: List the credit warning
signals.
• Putting off one creditor so you can pay another
• Receiving past-due notices
• Paying only the minimum amount on credit
balances
• Charging more each month than you can pay
• Using one charge account to make the payment
on another
• Having a monthly payment mentality rather
than knowing the total amount owed
Objective 13: List the credit warning
signals.
• Ignoring the high cost of interest when you
open or use credit
• Using cash advances for monthly living
expenses
• Obtaining higher credit limits or additional
cards to help juggle payments
• Routinely running out of money before payday
• Failing to save some money each month
Objective 14: Identify credit warning
signals.
Objective 15: Discuss the effects of
debt consolidation.
Advantages
• One creditor to work with
• One debt amount and one monthly payment
• Possibility of a lower interest rate if the loan
comes from a bank or credit union and is used
to pay off high-interest credit cards
• Interest may be tax-deductible if you use
money from a home equity loan to
consolidate your debts
Objective 15: Discuss the effects of
debt consolidation.
Disadvantages
• Debt period may be extended for a longer time,
resulting in more interest paid
• Interest rate may be higher if consolidation credit
comes to you through finance companies
• Your home may be at risk if you use money from
a home equity loan to consolidate your debts
• Consumers may continue to use credit cards and
find themselves even deeper in debt
Objective 16: Describe services that
offer counseling and advice to
consumers with credit problems.
• National Foundation for Consumer Credit
(Consumer Credit Counseling Service)
• “Mom-and-Pop” counseling services
• Psychologists
• Credit counselors at financial institutions
Objective 17: Discuss in order the
steps involved in challenging an
inaccurate credit report.
• If you are denied credit, request a summary of your
credit report.
• If you find out-of-date, false, or incomplete data, ask
the credit bureau to recheck that information.
• If the bureau finds their information is incorrect, it
must change the report and notify those who received
copies.
• If the bureau finds their information is correct, file a
brief statement of your version of the story to be sent
with all future reports.
Objective 18: Distinguish among
legal means of debt collection.
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Arrangement
Bankruptcy
Garnishment
Repossession
Objective 19: Identify true
statements about garnishment.
• Creditors can legally use garnishment to collect a debt
after regular collection procedures fail.
• Wages can be garnished for up to 25% of the
disposable weekly paycheck or for the amount by
which the disposable weekly paycheck is greater than
30 times the federal minimum hourly wage, whichever
is less.
• The creditor requests and receives a court order
granting the right to garnish a debtor’s wages.
• The employer receives a copy of the garnishment court
order which states that the employer must withhold a
percentage of the employee’s paycheck each pay
period.
Objective 19: Identify true
statements about garnishment.
• An employee cannot be fired simply because
his/her wages have been garnished.
• Money garnished from paychecks is sent to the
court clerk’s office where it is applied to the debt
owed.
• When the debt and all resulting legal fees have
been collected, the garnishment is completed
and the employer is notified to stop.
• The Department of Labor has rules to protect you
if your wages are garnished.
Objective 20: Choose alternatives
when debts cannot be paid.
Objective 21: Evaluate a credit
situation.
End of Unit 3