Front Back
Baby Boomers = ___ % of the population, ___ % debt
30 %, 60% -should be paying off debt by that age not acquiring it -ages 35-65
credit
-an arrangement to receive goods or services now and pay later
consumer credit
-credit used for personal needs other than a home -ties up future income
advantages of credit
-current use of goods and services -may purchase when funds are low -cushion for emergencies -advance notice of sales -easier to return merchandise -convenient when shopping
more advantages of credit
-one monthly payment -safer than cash -needed for reservations and online transactions -float time and grace period -rewards programs -indicates financial stability
disadvantages of credit
-temptation to overspend -potential damage to credit rating -DOES NOT increase total purchasing power -credit costs money
types of credit
open-ended and closed-ended
closed-ended credit
-installment loans -single pay loans
open-ended credit
-credit cards- short term -lines of credit -stays open unless you close it, or are forced to close it because of abuse
open ended credit- (travel and entertainment cards)
-not really credit cards -monthly balance is due in full
-not really credit cards -monthly balance is due in full
-based on equity in your home -resolving line of credit
measuring credit capacity
-check your budget -compute the ratios -debt payments to income ratio (want 20% or less) -debt to equity ratio
_____ affects measuring your credit capacity
-co-signing affects your capacity -guaranteeing someone's debt -you may have to pay -can damage your credit rating
when dealing with your credit report you should...
-build and maintain your rating -limit borrowing -pay on time -control the number of inquiries
you obtain your credit report from...
-credit bureaus -Equifax -Trans Union -Experian
Get credit report at
annualcreditreport.com
Fair credit reporting act
-regulates the use of credit reports -companies must correct inaccurate or incomplete information -only authorized persons have access to your information -adverse (harmful) data can be reported for 7 yrs and and bankruptcy for 10
The 5 C's of credit
-Character- attitude toward repaying debt -Capacity- financial status, can you afford? -Capital- how much you have saved, savings accts -Collateral- security for loan -Conditions- job security, "strike" example
to correct credit errors you should notify creditor in ________ within ___ days
writing, 60
to correct credit errors you should include _____________ and ________________
-account number -explanation of error
to correct credit errors the creditor must respond in ___ days
30
to correct credit errors there should be ____ billing cycles, but no longer than ___ days to make a correction
2, 90
while correcting a credit error your credit rating is __________ while item is still in dispute
-unaffected
consumer credit laws
-must report credit accurately -have to disclose APR -bills must be correct -prohibits discrimination
consumer credit laws
-truth in lending act -fair credit reporting act -fair credit billing act -equal credit opportunity act -fair debt collection practices act -consumer credit reporting reform act -fair and accurate credit transactions
types of loans
inexpensive loans medium priced loans expensive loans
inexpensive loans
-family -least expensive loan, should be in writing, could turn out to be a gift -secured with savings
medium-priced loans
-most common loans people get -banks, savings and loans, credit unions
expensive loans
-interest rates are much higher -finance companies -check cashing services -retailers -credit cards -cash advances
finance charge
is the total dollar amount you pay to use credit
annual percentage rate (APR)
is the percentage cost of credit on a yearly basis -true rate of interest so you can compare rates with other sources of credit.
trade-offs of credit- (term versus interest cost)-
-longer loans, lower payments, but more total interest
trade-offs of credit- (lender rick versus interest rate)-
-to reduce the lender's risk and the interest rate: -accept a variable interest rate -provide collateral to secure the loan -make a large down payment up front -have a shorter loan term
calculating the cost of credit
-simple interest -simple interest on the declining balance (the one you want, best choice) -add-on interest
cost of open-ended credit
-adjusted balance method -average daily balance method (the one you want) -two cycles average daily balance method -previous balance method
why consumers don't pay
not always because they are thieves -poor money management, excessive use of credit, unemployment, divorce/separation, medical expenses, etc.
reasons for debt
-emotional, revenge, expectation of instant comfort, keeping up with the Joneses, overindulgence in children, misunderstanding or lack of communication, amount of finance charges makes it difficult to repay, etc.
debt warning signs (DWS)- paying only the _______, growing ______, missing or late ________
-minimum -balances -payments
DWS- ________ using overdraft protection, dipping into _______ regularly, not discussing _____ or ____ discussing money.
-intentionally -savings -money, only
DWS- depending on overtime ____, not knowing how much you ____, ________ credit limits, no _______,
-pay -owe -limits -savings
DWS- being denied _____, having your credit card _______, postponing _______ visits
-credit -revoked -medical
when getting help with debt, you should go to
-consumer credit counseling services -your financial institution -universities, extension, military bases
what if you become overextended
-pay off smallest balances first
Types of bankruptcy
-chapter 7 -chapter 13 -both bankruptcy and both affect use of credit
chapter 7 bankruptcy
straight bankruptcy- immediate liquidation plan, they sell everything you have and wipe debt
chapter 13 bankruptcy
regular income plan- wage earner plan, pay off slo
financial implications of consumer decisions
-paying higher prices due to credit use -paying less and getting poor quality -selecting brands that are difficult to repair -ordering online, by phone or mail may be easier but returns are not -takes time to comparison shop
economic factors of purchasing
-consumer prices, interest rates, supply/demand, brand name, warranty, product quality, tax rates, govt regs
social factors of purchasing
- lifestyle, culture, attitudes, ads, media/internet, hobbies, peer group
personal factors
-sex and age, marital status, occupation, income, education, family size, housing type, ethnic group, religion
practical purchasing strategies
-timing purchases, store selection, brand comparison, label information, price comparison, evaluate warranties, service contracts
timing purchases
-when we buy (buy car at end of month)
store selection
-convenience and price
brand comparison
generic if same quality
label information
check expiration date
price comparison
bigger box or smaller box? (may not finish bigger box?)
evaluate warranties
only used 20% of the time
service contracts
only used 20% of the time
1st step to pre-shopping activities
problem identification -needs VS wants
2nd step to pre-shopping activities
information gathering -personal contacts -media information -independent testing organizations -government agencies -online sources
while evaluating alternatives you should
leave your significant other at home (spouse, child, etc.)
steps to evaluating alternatives
1)comparison shopping 2)selecting options -mechanical -convenience -aesthetic 3)new or used 4)buy or lease
sources of used vehicles
-new car dealers -used car dealers -individuals -auctions -used car superstore -online guides
advantages to leasing a vehicle
lower payments and cash outlay
disadvantages to leasing a vehicle
-no ownership in vehicle -maximum number of miles set ***smarter to buy than lease
need to know the numbers when leasing a vehicle
-capitalized cost (car) -money factor (interest) -payment amount -residual value (whats it worth in 3 yrs)
determining purchasing price
-know information about vehicle -deal with person of authority to lower price -get starting price information in advance -get price prior to mentioning trade-in -look for rebates or low interest rates -compare financing alternatives
sales techniques to avoid
-low-balling -high-balling -"how much can you afford per month?" -"just make a small deposit" -"it is only 100 above dealer cost" -preprinted sales agreement
the best buy
-first decide on quality -features NEEDED -then select best price
post-purchase activities
-automobile operation costs -motor vehicle maintenance -servicing sources and problems
lemon laws
laws that provide a remedy for purchasers of cars in order to compensate for cars that repeatedly fail to meet standards
resolving consumer complaints- order to complain to-
1) place of purchase 2) manufacturer's headquarters 3) consumer agency 4) legal action
arbitrator is
legally binding
legal options
-small claims court -class action suits -using an attorney -legal aid society -prepaid legal service
opportunity costs of housing costs
-interest income lost -time and cost of commuting to live in less expensive area -no tax advantages for renters -no equity build up for renters -time and money to repair/improve lower priced home -time and effort to custom build
advantages of apartment renting
-easy to move -less maintenance -minimal financial commitment
disadvantages of apartment renting
-no tax benefits -remodeling limitations -restrictive covenants
advantages to house renting
-easy to move -less maintenance -minimal financial commitment -more space than apartment
disadvantages to house renting
-no tax benefits -remodeling limitations -restrictive covenants -higher utilities than apartment
advantages to owning a new home
-no previous owner -pride of ownership -tax benefits
disadvantages to owning a new home
-financial commitment -higher expenses than renting -limited mobility
advantages to owning a previously owned home
-establishes neighborhood -pride of ownership -tax benefits
disadvantages to owning a previously owned home
-financial commitment -higher expenses than renting -limited mobility -possibility of repairs
advantages of owning a condominium
-pride of ownership -tax benefits -less maintenance than house -accessibility to recreation and business district
disadvantages of owning a condominium
-financial commitment -less privacy -limited mobility -uncertain demand -rules -assessments
advantages of owning a cooperative
-ownership is a non-profit -stable property values
disadvantages of owning a cooperative
-financial commitment -less privacy -limited mobility -potential disagreements -must cover cost of vacant units
advantages to owning a manufactured home
-less expensive -tax benefits -flexibility in selection of features and appliances
disadvantages to owning a manufactured home
-financial commitment -difficult to sell -may be difficult to finance -quality may be poor
legal details of a lease
-description and address of property -name and address of the owner/landlord (lessor) -name of tenant (lessee) -effective date and length of the lease -amount of security deposit -amount and due date of rent
renting your residence
-location where rent is due -date and amount for late rent payments -list of included utilities, appliances -restrictions on certain activities -the right to sublet the unit -conditions where landlord may enter rental unit
finding and evaluating a property
-selecting a location -be aware of zoning laws -assess the school system -using a real estate agent -conduct a home inspection or hire an inspector -mortgage company will want an appraisal
other financing methods
-buy downs -second mortgages -reverse mortgages- (not way to buy house, way to get equity back, only people of certain age can do this) -refinances
closing the deal
-must have savings aside -application or organization fee -credit report -title insurance and search fee -attorney's and appraiser's fee -property survey -pest inspection
selling your home
-preparing your home -determining the price -selling yourself -using a realtor -owner financing- (don't finance unless for your own child) -if selling home yourself, use attorney

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