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Good Debt Bad Debt Credit Cards and the Price of Instant Gratification

Welcome Back! One Highpoint from Spring Break…

Warm-Up Activity On a sheet of paper, write a 3-5 sentence response to this fact: Average credit card debt per household with credit card debt is: $15,799 Put your name on the top and pass in when done.

Purpose This unit will help you answer the following questions: How do I decide if I should use credit or not? How do know which credit card would be the best choice? How can I be a savvy and responsible consumer of credit? You will learn strategies for deciding when to use credit, and strategies for how to manage debt.

Objectives - You will be able to: Explain what credit is. Explain what Credit History is and why it is important List three types of credit card accounts Explain the uses and payment methods of each type of account. Identify the fees and terms associated with credit Compare issues of using cash versus credit cards and advantages and disadvantages of using credit.

Language Objectives: Read from workbooks and worksheets View YouTube credit card ads Discuss the implications of credit card use Record information found about credit cards Write about credit

Agenda: Background Vocabulary worksheet Credit Card Worksheet 1 Good vs Bad T-Chart Wrap up - Ticket out Homework: Shopping Activity! Come with list of items to purchase and costs… Meet in Lab tomorrow

CREDIT

INTEREST

CREDIT
Receiving money to buy goods and services now, with the promise to repay the money in the future.

INTEREST
The amount of money that the borrower must pay to the lender for the use of the borrowed money. With a credit card this is usually called a finance charge.

What Do You Think? Pg. 42 Nearly ____ of teens owe money to either a person or company with an average debt of _____ About ______ of teens ages 16-18 already have more than ______in debt. ______of teens say they understand how credit card interest and fees work. _____of teens say they know how to establish good credit.

What Do You Think? Pg. 42 Nearly 33% of teens owe money to either a person or company with an average debt of $230 About 26% of teens ages 16-18 already have more than $1000 in debt. 30% of teens say they understand how credit card interest and fees work. 36% of teens say they know how to establish good credit.

No way!! http://www.creditcards.com/credit-card-news/credit-card-industry-facts-personal-debt-statistics-1276.php

Videos http://www.youtube.com/watch?v=WFNXwor69-U (elephant)(1:08) http://www.youtube.com/watch?v=3TpSTCGrl8I (music)(:16) http://www.youtube.com/watch?v=1cNDSPutas8 (funk) (:16)

Vocabulary!

Vocabulary Complete the worksheet by filling in the correct words from the word-bank.

A credit card is… An agreement between you and the lender. You agree to pay back the money borrowed, with interest. An unsecured loan – meaning there is no collateral… NOT free money!! NOT open-ended! NOT a debit card

The Debit Card ATM Card bit with Visa logo Looks just like a credit card, but not a loan, no interest Backed only by the checking account behind it Widely accepted, can be a good budgeting tool F2

When to Use a Debit Card Use your debit card for everyday expenses like groceries, gas, movie theatres and restaurants When you need cash but are not near an ATM many retailers offer cash back after purchase F3

Card Security Create a PIN that a smart thief couldn’t figure out. Avoid the obvious like birth dates, names, etc. Always keep receipts Record transactions in your check register including fees to avoid overdraft charges F4

Know these terms…. Principal APR – annual percentage rate The cost of the credit expressed in annual terms The original amount borrowed

Understanding Interest Rates and types of credit… Non-installment credit Regular 30-day charge accounts (American Express) Travel and entertainment cards Installment credit Car loan, student loan, home loan Furniture purchase Revolving credit Department store cards Bank cards: Visa/MasterCard E4

And basic credit card terms! Grace Period Credit Limit The total amount you can charge without a penalty Number of days you can pay without incurring finance charges

Knowing Your Limit Don’t get in over your head. A credit card is a loan Anything not paid back in full is assessed an interest charge. There’s a pre-determined credit limit and money spent can be paid back in full or in installments. E3

Your Credit Score Everything you do with your credit accounts affects your credit score including car and school loan Creditors extend credit to credit worthy customers When you pay your bills on time, you are proving yourself credit worthy Banks reward good customers with lower interest rate loans and higher credit lines Employers may check your score. A bad score may result in fewer job offers E2

Universal Default Clause A clause some companies are including in a credit card agreement that means they can increase your interest rate if you make just ONE late payment! What is your opinion of this? Why? !

Worksheet!
Do together

STORE CARDS, F1

Different kinds of cards Major credit cards Store-branded credit cards Travel and Entertainment cards

You’ll pay a higher APR for cashadvances than you do for purchases. Use the APR to help you comparethe cost of different credit cards. All of these fees are on topof any interest you might pay. Annual Fees occur whether ornot you use your card. E6

Laws: Credit Card Act of 2009/2010 Truth in Lending Act Mandates disclosure of information about the cost (terms) of credit Fair Credit and Charge Card Disclosure Act Mandates a box on applications Fair Credit Billing Act Requires prompt credit for payments made, allows consumers to dispute errors and withhold payment for damaged goods

Credit Limit Maximum you can charge without penalty Incentives Benefits that encourage behaviors.

Review Take a minute and complete the last question on your own.

T-Chart! Using page 46 of your NEFE book – list the good and the bad of credit Work with a partner to create your t-chart.

Advantages and Disadvantages of Credit Offers and Options Advantages: Convenient Immediate purchasing power No need for cash Bills can be consolidated Zero liability on fraud But remember… It’s a loan Interest rate may go up May include additional fees Can be easy to overspend Can promote impulse buying E5

Summary - +’s and –’s -- ’s Loans charge interest if not paid Fees Can encourage impulse buying Can harm credit rating if not managed +’s Ability to obtain needed items Use of card builds credit history Quick source of funds in an emergency No extra charge if bill paid in full each month Consumer protection

Assignment:
Browse online or through a magazine and pick out something or a few things you might want to purchase. Make a list of the items and the price, and total the value of the items. Bring the list and dollar amount to class tomorrow. Meet in the computer lab.

Ticket Out…Respond on bottom of wksht1 “Paying with plastic – are credit cards good or bad?” Write about the advantages and disadvantages of credit cards. Write at least two things that support and at least two things that oppose the use of credit cards. Use complete sentences! Hand in Vocab, Wksht 1, and T-charts

Credit Day 2

Login and go to:
http://www.federalreserve.gov/creditcard/

Objectives Evaluate three different credit cards Formulate decisions as to which credit offers are most suitable for the situations. Analyze different terms for credit cards Analyze the cost of using credit to make purchases and the impact of payments and payment timing.

Language Objectives Read from workbooks, and a credit card application and statement Discuss the implications of credit card use Record information found about credit cards

Agenda Review Disclosure box terms Shop for a credit card Compare the cost of credit Wrap-up Homework: complete any activities not completed during class today!

http://www.federalreserve.gov/creditcard/#

6 questions to compare credit NEFE book on page 47. What’s the interest rate for purchases How long is the loan for (term) What’s my minimum monthly payment What’s the grace period What extra fees and penalties may be charged? Which is the best deal for me?

Activity: Shop for a credit card! Choosing the right card starts with comparison shopping www.BankRate.com www.CreditCards.com www.creditcardguide.com

Activity Compare the cost of credit vs the cost of cash Complete the comparison worksheet using the online calculator… http://www.federalreserve.gov/creditcardcalculator/Default.aspx

average daily balance: You pay interest on the average balance owed during the billing cycle. The creditor figures the balance in your account on each day of the billing cycle, then adds together these amounts and divides by the number of days in the billing cycle. adjusted balance: You pay interest on the opening balance after subtracting the payment or returns made during the month. previous balance: You pay interest on the opening balance, regardless of payments made during the month. past-due balance: No finance charge is added if the full payment is received within the grace period. If it is not received, a finance charge for the unpaid amount is added on to your next bill. calculating finance charges teens – lesson 8 - slide 8-B

examples of finance charges teens – lesson 8 - slide 8-C

Do I really require this item? Can I postpone purchasing the item until later? Can I afford to borrow or use credit?

Credit Day 3

Stand Up or Sit Down! Listen to the statements and either stand up or sit down as appropriate!

Creditworthy? Stand up if you feel you are creditworthy Why did you choose to sit or stand? What data are you using to evaluate your creditworthiness?

Objectives Explain the processes for applying for a credit card. Formulate decisions as to which credit offers are most suitable for the situations. Apply the information discussed in class to several mock situations to determine appropriate credit card needs. Explain how to manage credit responsibly. Construct a list of strategies that addresses the pitfalls of irresponsible credit card use, strategies for managing credit, credit ratings, and ways to establish good credit

Language Objectives Read scenarios Discuss the implications of credit card use Respond to questions on a credit card application Write about credit

Agenda Review an application 4-C’s of Credit and Creditworthiness Scenarios Strategies to manage credit, credit reporting How to avoid pitfalls

Carmen’s Creditworthiness? Turn to page 48 in NEFE book and review the blank credit application. Look at page 51 at Carmen’s application. Do you think Carmen will be approved for the loan? Why or Why not?

how much can you afford? (the 20-10 rule) never borrow more than 20% of your yearly net income If your net income (money after taxes) is $400 a month, then your net income in one year is: 12 x $400 = $4,800 Calculate 20% of your annual net income to find your safe debt load. $4,800 x 20% = $960 So, you should never have more than $960 of debt outstanding. Note: Housing debt (i.e., mortgage payments) should not be counted as part of the 20%, but other debt should. monthly payments shouldn’t exceed 10% of your monthly net income If your take-home pay is $400 a month: $400 x 10% = $40 Your total monthly debt payments shouldn’t total more than $40 per month. Note: Housing debt (i.e., mortgage payments) should not be counted as part of the 10%, but other debt should be included, such as car loans, student loans, and credit cards. teens – lesson 8 - slide 8-J

Activity Divide into Groups of 3 or 4. Take 1 situation card. Discuss as a team. Summarize your situation and provide your response to the class when called on to do so.

what to do if you’re denied credit if you think the reasons for the denial are valid: Ask the creditor if you can provide additional information or arrange alternate credit terms. Apply to another creditor whose standards may be different. Do the things you need to do to improve your creditworthiness (pay bills on time, increase income, reduce spending, obtain a secured card, etc.) and then reapply. if you are not sure whether the reason for the denial is valid: Ask the creditor to explain why you were denied. Review your credit history. If you find your credit history contains errors, take steps to correct the errors. if you believe the reason for the denial is invalid and that the creditor has discriminated against you: Notify the federal enforcement agency whose name you were given by the creditor. The federal enforcement agency will investigate and report back to you. If you can afford it, hire an attorney to file suit against the creditor. If the court determines the creditor did discriminate, the creditor will be required to pay you actual damages plus punitive damages. teens – lesson 8 - slide 8-E

credit card do’s and don’ts shop around Look at various sources. read and understand the contract Read the contract carefully. Don’t rush into signing anything. Once a contract is signed, get a copy of it. Know the penalties for missed payments. know your cost Figure out total price when paying with credit. Make the largest payments possible. Know the penalties for missed payments. Buy on installment credit only after you have evaluated all other possibilities. Don’t be misled into thinking small payments will be easy. teens – lesson 8 - slide 8-I

Homework: Finish up anything you did not get done in class Meet in computer lab tomorrow! Closure: Lets discuss!

Credit Day 4

What do you know? Take out your notes and worksheets (passed back) from previous days. Jot down 2-3 statements that summarize the most important keys to credit management.

Objectives Construct a project that explains credit and how to be a savvy consumer of credit

Language Objectives Discuss a project Document/Write/Draw or Record strategies and information about credit.

Agenda Work day!

Project Purpose: Demonstrate what you know about credit and how to be a savvy consumer of credit. Grading: You will be graded based on the rubric. Due Date: Monday, April 2, 2012 – beginning of the hour…late work will 10% of the total points for each day late. Use your time wisely. You will have the entire class period today to work on it. SHOW WHAT YOU KNOW!

Project choices: Create an ad/video (video taped or story board) (minimum :60 add) Create a comic strip (minimum 15 frames) Write and perform a rap/song (reasonable length) Create a brochure for kids about credit (6-8 panels minimum) Write and illustrate a children’s book (10-12 pages minimum Create and give a presentation for elementary grade student (5 minutes) 3-4 page essay (double spaced, 12 pt Arial font) Newspaper article (1 full page) Another project of your choice if approved by teacher

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