Credit and Debt Management

What is Credit?

• The ability to borrow money or access goods or services with the understanding that you'll pay later

• When you borrow you are making a promise to repay, usually including interest

The Three C's

• A person's reputation for paying bills when due

• a.k.a. Credit Worthiness

​Character

​Capacity

​Collateral

• An asset pledged to the creditor until the credit obligation is paid

• Your ability to pay your debts

How to Maintain/Improve Credit

• Limit spending to needs, not wants

• Remember that credit cards are loans

• Keep a low balance

• Charge less than the maximum amount available (no more than 30%)*

• Keep the record of your purchases to avoid overspending

• Always pay on time!*
  If you can't pay your bill, contact your creditor. Request (in writing) a reduced payment schedule

• Negotiate a payment plan that you can afford

Disadvantages of Bad Credit

• Higher interest rates

• Limited sources of credit

• Limits employment opportunities

• Higher insurance premiums

• Difficulty in obtaining credit approval

Are you ready to get a credit card?

1. Do you have stable, consistent income?

2. Are you financially disciplined?

Must be "yes" to both questions to justify getting a credit card

Determinants of Loan Cost

• Interest rate/Annual Percentage Rate (APR)

• Term of the loan

• Length of employment

• Your credit score

• Your credit history

What is Debt?

• The amount owed by the borrower to the lender

Good Debt vs. Bad Debt

• Money owed for things that do little to improve your financial outcome

• Money owed for things that can help build wealth or increase income over time

"Good Debt"

"Bad Debt"

Credit & Debt Management Post-Test