CSM 204- Unit 2
CSM 204- Unit 2 CSM 204
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This 34 page Bundle was uploaded by Kristen Marie on Tuesday February 10, 2015. The Bundle belongs to CSM 204 at University of Alabama - Tuscaloosa taught by Caroline Fulmer in Spring2015. Since its upload, it has received 259 views. For similar materials see Intro to Personal Finance Planning in Consumer Education at University of Alabama - Tuscaloosa.
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Date Created: 02/10/15
41 Disadvantages of Credit Temptation to overspend Potential damage to credit rating Does not increase total purchasing power Credit costs money Minimum payment tempting 39 Mose cmm 39 Wm M lam moi Types of Credlt i iS COSCd Cl dE d d Ifallmntoans 39 quot39 monmquot MilWV 68mg pgvfans inmuwnr was warm WI pen n e Dali Credit cards Wedlf lgsd mm Lines of credit dang Pow om Shon Tum va Vitith wonmo 0mrqc up WM down 1mm vemuminmem Card Other OpenEnded Credit 39 989 N Smart Cards O 39 Debit Cards u A now he w V 0m u o Stored Value Cards N 3 aquot Travel and Entertainment Cards A mwge a on mart Phones Home Equity Loans Page 3 Protecting Against Fraud Sign new cards immediately 0 Keep cards secure Shred documents with account number Don39t give out account number over the phone unless initiated by you 1 Get and keep receipts Report lost or stolen cards immediately Check your credit report Online Purchases Use secure browser Keep records of transactions Review monthly statements Read policies of websites Shop at businesses you trust Never give out your password Don t download files send by strangers 570 or hf 39mwm an Measuring Credit Capacity Check your budget Compute the ratios Nud ms qnor Debt Payments to Income Ratio Debt to Equity Ratio 1me s om Kind oi respms bi W4 Cosigning affects your capacity Guaranteeing someone s debt Agra WHY QW W MW You may haveto pay Appar on VOW MW PUFFS Can damage your credit rating A debt mm Nab attth ll ux mutt stow 3ath Page 4 Your Credit Report LOW 5005 g50 filmmma 951 or High 1v borrow Build and maintain your rating Limit borrowing 100 Mm lou i v bolYOuJ WW You W Pay on time Control the number of inquiries Credit Bureaus 0 8 hnLJi A iDM Vial777quotquot Equifax Trans Union Experian Iii iiilili J Hill I ill I 1 39 ns rommmr Fair Credit Reporting Act Regulates the use of credit reports Vquot IV Dwi nq Companies must correct inaccurate Q or incomplete information N M m mr gvg m 39 1 O 3 Only authorized persons have access to your information 39 01mm Wit Wort 01115 Adverse data can be reported for 7 years and bankruptcy for 10 o wwwannualcreditreportcom most mwrwm39 m 3139 mvormnt Applymg for Credlt mmmr mitmion in bormwl mm The Five C s of Credit 39 39 39 39 mutil mcomlacym romo Character apiclity api a v oumtmi fo ifli39crm may 4 ed Collateral C d39 39 on mons Cimi non s v not unwind cw air 3 h 4 qc quotmy V Correcting Credit Errors Notify creditor in writing within 60 days Include account number and explanation of error They must respond within 30 days Two billing cycles but no longer than 90 days to make correction Credit rating unaffected while item is in dispute llllllll lllllil Illllll i I l quotTmm in whaling mal rmnr 39EC on cannot AlsoMC Consumer Cre t Laws Truth in Lending Act Equal Credit Opportunity Act gt Fair Credit Billing Act Fair Credit Reporting Act Consumer Credit Reporting Reform Act iair and Accurate Credit Transactions ct Credit Card Accountability Responsibility and Disclosure Act Page 7 J4 CHAPTER 7 Choosing a Source of Credit The Cost of Alternatives sr L L L L L Objectives Analyze the major sources of consumer credit Develop a plan to manage your debts Evaluate private and governmental sources that assist consumers with debt problems Assess the choices in declaring personal bankruptcy l n LLgLL r lllll 1 41 Al I of A A r Illl ii IIII What Kind of Loan Should You Seek Inexpensive loans Family Secured with savings Medium priced loans Banks savings and loans credit unions quotFuw ki 80H no 39Mcollum pnuol looms AgWMN Humble mitm r mm Page1 39 Other Cost Factors W a I CWW hit instraindrnormm 0 Inflation Taxes 39Wlsumm paid n bam n cover Minimum payment Win in PM of drain Early repayment V Credit insurance Credit Card Accountability Responsibility and Disclosure Act of Limits rate increases in year one Restricts rate increases to new purchases Must inform of rate increase 45 days in advance Teaser rate for at least 6 months Statement 21 days prior to due date Credit Card Accountability Responsibility and Disclosure Act of 2009 Statement must Display due date and late fee prominently Disclose length of repayment if only minimum is paid Disclosure must be on internet Restricts over limit penalties No cards issued to consumers under 21 without cosigner What If you Become Overextended Take on no new credit Refinance if better rate is available Seek good help i Avoid bad help a S d t omm What If You Don t Pay Phone Calls and Notices v Demand Letter 0qu dwls YaS39i 0Wquot 39Acceleration Clause 41AM poulmml39 i Repossession 39 Sale of Assets Judgement for Deficiency Balance Bankruptcy Chapter 7 Straight Bankruptcy C ms 1 Immediate Liquidation Plan Chapter 13 Regular Income 1 Plan Wage Earner Plan 34 M win L W l llll mm Mind agar6W mans tin lb wants mm album W5 mumm J3m1 39j45r4 739 l 39 x 117 r133 1 v 39 3939 5quot 7 Leasing 8 Vehicle LOW payments and cash outlay No ownership in which Maximum nunber of miles set Need to know the numbers Capttalized cost Money tactor Payment amount Residual value 00 RVT MF N Determining Purchase Price 0 Know information about vehicle Dealwithpersonotauthoritytolowor price Get starting price intonnation in advance Get pnoe pnor to mention 0 Look for rebates or low interest rates Compare nancing attematives Sales Techniques to Avoid Low balling High balling How much you afford per month Just makessmall deposit 0 It is only 100 above dealer Preprtnted sales agreements CC mingm estduwl how m m l Sr39am 30 070 mm to Witbf 7mm U i f i L 39Pnu u Mummy tom 39Pnu It 141ng m s mom7 mam th mm man I worm CSM 204 Exam 2 Review Sheet 1 Definition of credit and consumer credit a Credit An arrangement to receive cash goods or services now and pay for them in the future b Consumer Credit The use of credit for personal needs except a home or mortgage 2 Importance of consumer credit in our society a Major force in the economy 3 Uses and misuses of credit a Uses i EmergenciesMedical ii Purchase future benefits car for former homemaker who is enter workforce again iii Borrowing for college education b Misuses i Shopaholics ii Using credit to purchase items outside budget limits 4 Advantages and disadvantages of credit a Advantages i Current use of goods and services ii May purchase when funds are low iii Safer than cash or debit cards iv Cushion for emergencies v Easier to return merchandise vi Convenient when shopping vii One monthly payment viii Needed for reservations and online purchases ix Float time and grace period x Rewards Programs 1 Cash back 2 Merchandise 3 Accidental death and dismemberment insurance 4 Auto rental insurance 5 Roadside assistance xi Indicates financial stability b Disadvantages i Temptation to overspend ii Potential damage to credit rating iii Does not increase total purchasing power iv Credit costs money v Minimum payment tempting 5 Types of credit a Closeended i Installment Loans 1 Monthly payments a Installment sales creditcar purchase b Installment cash creditBank loanstudent loan ii Single Pay loans 1 Short term a Lump sum payment b Openended i Revolving charge uppay down 1 Credit cards 2 Lines of credit 3 Smart cards ACT Card 4 Debit Cards Stored value cards gift cards 6 Travel and entertainment cards a Business expenses only b Responsibility lies with the employee 7 Smart phones 8 Home Equity loans 6 General rules of credit capacity a Check your budget b Debt PaymentstoIncome ratio i Dividing monthly debt payments short term liabilities by net monthly income c DebttoEquity ratio i Dividing total liabilities by your net worthexcluding value of home and mortgage d Cosigning i Guaranteeing someone s debt ii Can damage your credit rating e Building and maintaining your credit rating I 7 Cosigning a loan a Being asked to guarantee the debt i If borrow is unable to pay you are liable for the repayment of the debt b Things to consider before you cosign a loan i Be sure you can afford to pay the loan ii Consider that even if you are not asked to repay the debt your liability for this loan may keep you from getting other credit you want iii Before you pledge property to secure the loan make sure you understand the consequences iv Check the state laws v Request a copy of overduepayment notices be sent to you so that you can take action to protect your credit history 8 Building and maintaining your credit rating a Limit borrowing b Pay on time c Control the number of inquiries 9 Five Cs of credit from most important to least Character intention to borrowrepay Capacity Incomeexpense ratio Capital savings Collateral no collateral is okay with certain types of credit large amount requires collateral e Conditions general economic conditions which cannot be controlled 10 Improving your credit rating a Get copies of your credit report and verify that the information is correct b Pay bills on time c Understand how the score is determined d Learn the legal steps e Beware of credit repair scams 11 Correcting credit mistakes a Notify creditor in writing within 60 days Include account number and explanation of error They must respond within 30 days Two billing cycles but no longer than 90 days to make correction Credit rating unaffected while item is in dispute 9quot goo9 0103 12 CARD Act a b Bans unfair rate increases on existing balances and restricts retroactive increases due to late payments Ends late fee traps such as weekend deadlines due dates that change every month and deadlines that fall in the middle of the day Requires issues to display on monthly statement how long it would take to pay off the existing balance and the total interest cost if the consumer paid only the minimum due Contains new protections for college students and young adults Requires issuers extending credit to people under 21 to obtain signature of a parent guardian or other individual 21 years or older who will take responsibility for the debt or proof that the applicant has an independent means of repaying the debt 13 Sources of consumer credit a What kind of loan should you seek i Inexpensive loans 1 Family 2 Secured with savings ii Medium priced loans 1 Banks savings and loans credit unions iii Expensive loans 1 Finance companies Check cashing services Retailers Credit Cards Cash Advances iv Predatory Lending offering services when people cannot afford in budget mews 14 Student loans Usually lower interest rate Legal obligation All come from US Department of Education Must be paid back No longer discharged in bankruptcy 15 Finance charge and APR a b Finance charge the total dollar amount you pay to use credit APR the percentage cost of credit on a yearly basis i True rate of interest so you can compare rates with other sources of credit 16 The tradeoffs in credit a b Term vs interest costs longer loans lower payments but more total interest Lender risk vs interest rate i Accept a variable interest rate ii Provide collateral to secure the loan iii Make a large down payment up front iv Have shorter loan term 17 Managing your debt a If you find you cannot make your payments contact your creditors at once and try to work out a modified payment plan with them 18 Reasons for indebtedness a b c d e Excessive use of credit Unemploymentreduced income Poor money management Divorceseparation Medical expenses 19 Danger signals of potential debt problems a b c Depending on overtime pay Not knowing how much you owe Exceeding credit limits d No savings e Being denied credit f Having your credit card revoked g Postponing medical or dental visits 20 Consu er Credit Counseling Service a Local nonprofit organization that provides debt counseling services for families and individuals with serious financial problems 21 Types of bankruptcy a Chapter 7 straight bankruptcy immediate liquidation plan b Chapter 13 regular income plan wage earner plan 22 Practical purchasing strategies and impulse buying a Timing purchases Store selection Brand comparison Label information Price comparison Evaluate warranties g Service contracts 23 Warranties and service contracts a Warranty written guarantee form the manufacturer or distributor of a product that specifies the conditions under which the product can be returned replaced or repaired 24 Phases of making a major consumer purchase a Preshopping activities i What are your needswants ii Information gathering 1 Personal contacts a Personal testimonies 2 Media information a Advertisementsconsumer reports Independent testing organizations 4 Government agencies a Safety regulations 5 Online sources a Reviews b Evaluating alternatives i Comparison shopping 1 Going to different places to compare the same product ii Selecting options 1 Mechanical 2 Convenience 3 Aesthetic iii New or Used iv Buy or lease c Determining purchase price i Know information about vehicle ii Deal with person of authority to lower price iii Get starting price information in advance iv Get price prior to mentioning tradein v Look for rebates or low interest rates vi Compare financing alternatives d Postpurchase activities i Lemon Laws ii Automobile operation costs The S 25 26 27 28 29 30 iii Motor vehicle maintenance 1 Servicing sources and problems Advantages and disadvantages of leasing a vehicle a Advantages i Lower payments b Disadvantages i No ownership in vehicle ii Maximum mileage set Resolving consumer complaints a Place of purchase b Manufacturer s headquarters c Consumer agency i Medication ii Arbitration iii Legal action Legal options for consumers a Small claims court b Class action suits c Using an attorney d Legal and society e Prepaid legal service Opportunity costs of housing choices a 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 repairimprove lower priced home f Time and effort to custom build Renting versus buying housing Advantages and disadvantages of renting a Apartment renting i Advantages 1 Easy to move 2 Less maintenance 3 Minimal financial commitment ii Disadvantages 1 No tax benefits 2 Remodelinglimitations 3 Restrictive covenants b House Renting i Advantages 1 Easy to move 2 Less maintenance 3 Minimal financial commitment 4 More space than apartment ii Disadvantages 1 No tax benefits Remodeling limitations Restrictive covenants Higher utilities than apartment 0903 2 3 4 31 Costs of renting a Security deposit held by the landlord to cover the cost of any damages done to the rental unit during the lease period b Interest paid on security deposit c Utilities 32 Benefits and drawbacks of home ownership a Benefits i Pride of ownership ii Financial benefits iii Lifestyle flexibility b Drawbacks i Financial uncertainty ii Limited mobility iii Higher living costs 33 Finding and evaluating a property to purchase a Selecting a location i Be aware of zoning laws ii Assess the school system b Using a real estate agent i Benefits 1 Know where houses are for sale 2 Know the marketing 3 Know the pricing able to select what you can afford 4 No cost to you as buyer ii Drawback 1 Limit housing sold by owner only will not be shown by realtor 34 Reverse mortgages a Borrowing against an asset of great value to receive monthly income 35 Closing the real estate transaction a Application or origination fee Credit report specific to mortgage lending Title insurance and search fee Property survey Pest inspection Homeowner s insurance Escrow for taxes and insurances Prepaid interest i Real estate commission 36 Selling your home a Preparing your home Determining the price Selling yourself Using a relator Owner financing anrhrbslog 0103
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