Personal Finance

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					Personal Finance

    Chapter 18
   Cost of Credit
Natasha Gill, Teacher
 Describe the responsibilities of consumer
   Explain why credit costs vary.
   Understand and compute simple interest.
   Explain how to compute the APR on
    installment credit.
   Compare methods of computing finance
    charges on revolving credit.
   Describe how credit costs can be reduced or
The Cost of Credit
 Consumer responsibilities when using credit:
   To self
   To creditors
 Creditor’s responsibilities to users of credit
 Strategies to prevent credit card fraud
 Why credit costs vary:
   Source of credit
   Amount borrowed
   APR
   Type of credit
   Costs other than finance charges
 How to compute the cost of credit:
   Simple  interest
   Installment interest
   Finance charge on credit card purchases

 How to avoid unnecessary credit costs
Credit responsibilities
 To yourself
   Use credit wisely
   Have the right attitude
 To creditors
   Limit spending to what you can pay
   Read and understand agreements
   Contact the creditor when there’s a
Preventing Credit Card Fraud
Consumers’ Responsibilities
 Carry only the cards you need.
 Keep a list of credit cards and their
  numbers in a safe place.
 Notify creditors immediately when a
  card is lost or stolen.
 Keep a copy of all sales receipts;
  compare to bill when received.
 Notify a creditor immediately – in writing
  – if a discrepancy appears.
 Put cards back in your wallet after
  completing a purchase.
 Sign newly issued cards immediately.
 Destroy (cut) expired cards.
 Don’t give credit card numbers and expiration
  dates (by phone) to people or businesses you
  don’t know.
 Don’t allow sales clerks to write credit card
  numbers and expiration dates on checks.
 Destroy carbons, old credit slips, statements,
  canceled checks, and other sources of data.
 Don’t allow clerks to make a second
  imprint – keep your credit card in view
  at all times.
 Don’t write your address, phone
  number, or other data on charge slips.
Avoiding Unnecessary
Credit Costs
 Accept only the amount of credit that
  you need.
 Keep credit spending steady when
  income increases (save or invest the
 Keep credit cards to a minimum. Only
  carry what you use.
 Pay cash for small purchases.
 Understand the cost of credit.
 Shop for loans.
 Use credit to beat inflation (to avoid
  price increases).
 Use credit to your advantage; the cash
  not spent on purchases can be
 Time purchases carefully – know your
  billing dates.
 Use service credit wisely.
 Take advantage of rebate programs.

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