C.A.R.E.

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C.A.R.E. Credit Abuse Resistance Education A program of: WV State Bar Association WV Bankruptcy Courts WV Bankruptcy Law Committee. What if You Bought…. A plasma TV for \$1,200 A computer for \$500 A new car stereo for \$300 Totaling: \$2,000

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### C.A.R.E.

Credit Abuse Resistance Education

A program of:

WV State Bar Association

WV Bankruptcy Courts

WV Bankruptcy Law Committee

What if You Bought…

A plasma TV for \$1,200

A computer for \$500

A new car stereo for \$300

Totaling: \$2,000

• You use your credit card to buy the system making monthly payments of \$300
• Assume you never miss a payment and the annual percentage rate is 8%
How Much Would it Be?

Your total cost would be \$2,052 and it would take you 7 months to pay for it!

What If…

18% APR

• Your credit rating is poor and you must pay an interest rate of 24%
• You also only pay the MINIMUM MONTHLY PAYMENT of only \$50 per month

23% APR

Now, How Much Would it Be?
• It would take you 82 months (almost 7 years) to payoff the system
• Your total payments would be \$4,062
• Pay \$2,000 cash
• Pay \$2,052 over seven months
• Pay \$4,062 over seven years
How Much Could I Save?

If you took the \$2,000 you save as a result of paying cash for the stereo and invest it together with \$2,000 every year until you are age 60…

…MILLIONS

You would have a nice fat bank account totaling \$1,200,000!

What is Credit?
• Credit is the ability to borrow money
• Borrowing is the creation of debt
• Debt is what you owe
Reasons for Having a Credit Card
• Emergencies
• Large purchases (necessities)
• Establish a credit history
• Identification
• Safety
Types of Cards
• Debit Cards
• When used, money is drawn directly from your bank account, just like writing a check
• If there is no money in the account, the card cannot be used
• Debit cards do not extend credit
Types of Cards
• Charge Cards
• Issued by retail stores to be used exclusively at that particular store (such as Macy’s, Best Buy or Sears)
• If a balance is carried from month to month, the interest rate is usually in excess of that offered by other card issuers
Types of Cards
• Credit Cards
• Involves the extension of credit by the card issuer
• Credit cards are accepted at almost any store
• If a balance is carried from month to month, interest rates are set forth in the cardholder agreement
What is Interest?
• Interest is the amount that a lender charges to borrow money
• The higher the interest rate, the more money you pay
• Interest rates vary from company to company
INCOME

Gross wages \$2,000

Payroll deductions (400)

Net monthly pay \$1,600

What is a Budget?

EXPENSES

Rent \$ 500

Utilities 100

Food 200

Clothing 20

Laundry 20

Transportation 200

Recreation 30

Insurance 90

Installment Payments 350

Misc. Expenses 50

Total Expenses \$1,600

What is so importantabout Good Credit?
• Your history of payments, employment, and salary makes you a good candidate for a loan
• You can get a better interest rate – lower payments
• You will be viewed as financially trustworthy – better loan terms
• May help you rent an apartment and obtain employment – most landlords and prospective employers will look at your credit report
• Your history of late payments, not paying your debts or borrowing too much money makes you a poor candidate for a loan
• You will pay two or three times more than the original price
• You may have trouble getting a loan, a credit card, a place to live, a student loan or employment
Consequences of Credit Abuse
• Divorce or relationship problems
• Depression or suicide
• Reduced performance at school or work
• Being turned down for a loan for a house, car or job
• Having to drop out of school