Going into debt

Credit- The receiving of money either directly or indirectly to buy goods and services today with the promise to pay for them in the future.

Principal- The amount borrowed. Interest- Amount you pay for the use of

some-one else’s money.

Consumer debt almost doubled between 1987-1997.

Installment debt- Pay back with equal payments over a certain period of time.

Used for durables goods, manufactured items that people use for long periods of time.

Mortgage- Installment debt owed on real property. Largest form of installment debt.

1. Immediate need, you can not always put off until later to make a purchase.

2. Spread payments◦ The longer the loan the less you pay monthly.◦ The longer the loan the more you pay in interest.

1. do I really need this item? 2. If I pay cash, what will I be giving up

that I could buy with this money? 3. If I borrow or use credit, will the

satisfaction I get from the item I buy be greater than the interest I pay?

4. Have I done comparison shopping? 5. Can I afford to borrow or use credit

now?

1. Commercial Banks 2. Savings and Loan Associations 3. Savings Banks 4. Credit Unions 5. Finance companies and Consumer

Finance Companies

1. Regular Charge Accounts, or 30-day charge. Credit limit low, paid off each month.

2. Revolving Charge Accounts, make additional charges even if the amount is not paid off.

3. Installment Charge Accounts, paid through equal payments.

Credit Cards, allow you to make purchases without using cash. Visa and Master card are the two biggest.

Debit Card, make purchases without using cash but the amount is automatically taken out of your account.

Finance charges, Interest plus any other charges connected with credit.

Annual Percentage Rates APR, the cost of credit expressed as a yearly percentage.

Credit Bureau, private business checks your credit.

Credit Check, investigating your credit. Credit Rating

◦ Past history◦ Capacity to pay◦ Character◦ Collateral

Secured loan, backed with collateral Unsecured loan, based on reputation and

promise to repay Responsibility as a borrower

◦ Pay on time◦ Keep records◦ Notify of loss of card

Truth in Lending Act (1968)- information on costs and conditions of borrowing.

The Equal Credit Opportunity Act (1974)- can not deny credit based on race, religion, national origin, gender, marital status or age.

State Usury Laws- set limits on interest charged.

Congress sets bankruptcy laws Certain bills still must be paid, taxes 10 years on your record. 2005 amendments make it more difficult to

declare bankruptcy.