Using Credit is part 4 of the 6-part Money Matters class, created by the Athens-Clarke County Library. Money Matters is part of Smart investing @ your library®, and is brought to you by a joint grant from the American Library Association and FINRA, the Financial Regulatory Authority Foundation.

1. Money Matters
Class 4

2. CREDIT
A loan: when we use someone else’s money to
pay for things with a promise to repay the loaned
amount, plus interest.
Used wisely, credit can enable each of us a
chance at:
home ownership
education
personal transportation
other goods and services.

3. Credit Guidelines
 House: no more than 25-30% of net
income

Taxes, insurance and interest
 Car: no more than 10-15% of net income

Insurance, taxes, gas and maintenance
 Education
 Student loans often have low rates
 Do not have to be repaid until the student graduates
or stops going to school

4. Establishing Credit
 First, make an application
 The Lender will determine your financial
trustworthiness based on:
 Credit history
 Employment status
 Income
 Co-Signor

5. Credit Terms
 Credit Limit
 Annual Percentage Rate, interest rate
 Annual Fee
 Payment Due date
 Minimum payment required
 Grace Period
 Fees

6. Installment Plans
Lay-away
 Enable you to buy something expensive and pay
for it little by little over a set period of time
 Fees are generally lower than credit cards
 However, you must wait until the item is paid off
before you can take it home.
 Remember, once you have agreed to these
payments, you may lose money if you do not
make payments on time.

7. AUTO Loans
 Use the 10-15% of net income formula to
determine how much you can spend on a
car
 Taxes
 Insurance

Gas and Maintenance
 Keep the loan term to 5 years or less
 Obtain your own financing

8. Pre-Owned Car
 Buy the $20,000 car today or buy the same car
used one year later for $16,400.
NEW USED
Car Price $20,000.00 $16,400.00
Interest Rate 7.50% 7.50%
Term (months) 60 48
Monthly Payment $ 429.00 $ 425.00
Total Cost $25,740.00 $20,400.00

9. Credit Cards
 Also known as, Consumer Debt
 Unsecured
 Easiest type of credit to get
 Higher interest rates
 Never charge more than you can pay off in
one year or less
 Always pay at least the minimum, plus the
interest payment

10. Benefits of Using Credit Cards
1. Convenience and safety of not dealing with
cash
2. Protection under the Consumer Credit
Protection Act
3. Incentive Benefits
4. Cash Back Rewards
Given all of the above, credit cards still cause
problems for most people more often than
they provide benefits

11. How to use credit cards and
stay out of DEBT
 Never use your credit card for anything but
budgeted purchases
 Use only a small amount of the credit you
have
 Pay off your credit card every month and
on time
 Carry a balance the right way
 Read the fine print

12. Choosing a Credit Card
 What kind of card is it?

Standard Card, revolving balance
 Premium Credit Card, offer incentives
 Charge Card, no limit / PIF
 Limited purpose, gas and department
store

Secured Credit Card

13.  How are you going to use it?
 Pay in full each month
 Transfer balances

Carry a balance
 What is the Annual Percentage Rate?
 How long is the grace period?
 What is the Credit limit?

14.  What are the fees?

Annual Fees
 Late Fee

Over-the-Limit Fee
 Check Return Fee
 Payment over the phone
 How is the Finance Charge Calculated?
 What are the rewards?

15. Pay More than the Minimum
 Save Money
 Pay off the balance sooner
 Improve your credit score
 Get ready for a mortgage / car loan
 Make room for more - increase your
available credit

16.  Every dollar you spend for interest on
credit card payments has two effects:
1. It increases the cost of current spending by
adding interest to the purchase
2. It reduces the amount you can spend and
save for tomorrow.

18. DEBT
 Debt is something that we owe
 How do we get into debt?
 Ignorance – we didn’t know how to manage
money

Indulgence – we want everything, NOW!
 Poor Planning – we didn’t prepare for the
unexpected (job loss, illness, emergency)

19. Guideline
What is a reasonable level of debt?
 The 20 percent rule.
 You should avoid committing more than 20%
of your monthly net income to cover your total
monthly payments for auto loans, credit card
purchases, installment and personal loans.

20. Suggested Budget Percentages
 Savings 10-15%
 Housing 25-30%
 Utilities 5-10%
 Food 10-20%
 Transportation 10-15%
 Clothing 2 - 7%
 Medical / Health 5-10%
 Personal 5-10%
 Recreation 5-10%
 Debts 10-20%

21. Warning Signs of Too Much Debt
1. You don’t have any savings
2. You only make the minimum
payment each month
3. You continue to charge while
trying to pay them off.
4. You have at least one credit at or
near your credit limit.
5. You are occasionally making late
payments.

22. 6. You don’t even know how much debt you
have.
7. You use cash advances from your credit
cards to pay other bills.
8. You bounce checks or overdraw your
bank accounts.
9. You have been denied credit.
10. You lie to friends or family about your
spending and debt.

23. Breaking Free of Debt!
1. Acknowledge that you are in debt.
2. Stop any form of borrowing no matter
what.
3. Determine where you are in debt.
4. If you owe a few creditors – call them
and try to negotiate for a smaller
payment.
 ALWAYS call before you miss a payment.

24. 5. If you owe many creditors, it may be time for
outside help.

Consumer Credit Counseling - a national non-profit
agency who can work with your creditors to set-up a
repayment plan.
5. Develop a budget
6. Curb your impulse to buy
7. Try to find ways to increase your income.
 DO NOT ignore bills and past-due notices. A
poor credit rating will follow you for years.

25. Consumer Credit Counseling
Service
Founded in 1964
Non-profit and member of the National
Foundation for Credit Counseling
(NFCC)
http://www.credability.org/
1.800.251.2227

26. Credit Report
Each credit report lists your:
 Credit accounts, including credit cards, auto
loans, student loans, and mortgages

Creditor and account number

Balance

Date opened

Payment history

Current status, such as “OK”, “Closed by customer”,
“30 days late payment”, etc.
 Inquiries: recent applications for new credit
 Collections: when a collection agency is
seeking you to repay a debt
 Public Records: court judgments such as a
bankruptcy, foreclosure, or tax lien

27. Credit Report
 Credit Reporting Agencies:

Experian
 Trans Union
 Equifax
 Credit reporting agencies track how well
you repay your loans.