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  1. Credit • Credit: buying goods or services or borrowing money in exchange for a promise to pay in the future • Creditors: people who lend money • Debtors: people who owe the money • Finance charge: money paid for using the credit • Interest rate: percentage charged per month for credit • penalty charge: covers costs to seller in case of late payments

  2. Two Types of Credit • Unsecured credit: credit based on promise to repay with no other backup • ex: credit card • most credit cards have limits (better credit leads to higher limit) • don’t have to pay off full amount each month, but they do have minimums you must pay – finance charge • different companies charge different interest rates • Annual percentage rate (APR): the percentage cost of credit on a yearly basis • Some companies charge on based on date of transaction • Some companies charge on amount left over after billing period • Some companies charge annual fee • 18% yearly interest=1.5% interest monthly • ATM/debit card: : card that allows holder to draw money directly from account • Secured credit: credit based on promise and backup property • collateral: property of value put forward in exchange for credit • If debtor defaults the creditor can TAKE collateral

  3. Default: Not paying back loansWhat can your creditor do? • Practice: hire outside collection agencies to get the money • Practice: calls and letters • restriction: can’t be harassing • if harassing, contact consumer protection agency and demand all contacts stop • Practice: repossession: taking back of collateral • only applies to secured credit • restriction: can not use violence to repossess • Practice: court action • usually last resort because it costs the creditor more • default judgement: a judgment in favor of creditor because defendant didn’t show up (regardless who is right)

  4. Default: Not paying back loansWhat can your creditor do? • Practice: garnishment: court order forcing debtor’s employer to withhold part of debtor’s wages and pay it directly to creditor • only after a court action in favor of creditor • restriction: Wage Garnishment Act: act limiting garnished amount to 25% of pay after taxes • also federal employees, people on welfare or unemployment can not have wages garnished • also employers can not fire based on garnishment • Practice: attachment: court order forcing a bank to pay creditor from debtor’s bank account • also allows court to seize debtor’s property and sell it to pay off debt

  5. Bankruptcy: procedure in which debtor places all assets under control of federal court • Two types • Chapter 13: debtor can pay off some or all of debt over extended period of time under court supervision • Chapter 7: court seizes all assets and sells them to pay off debt • Usually assets do not cover all debt • Record of bankruptcy stays on credit report for 10 years (everything else is 7) • credit report: report of a person’s entire credit history; used by companies to determine if future credit will be given • Debt from taxes, child support, student loans can not be wiped out