Transcription
Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill0
Chapter 6Consumer CreditWhat You’ll Learn Section 6.1 Explain the meaning of consumer credit. Differentiate between closed-end credit and openend credit. Section 6.2 Name the five C’s of credit. Identify factors to consider when choosing a loan orcredit card. Explain how to build and protect your credit rating. Section 6.3 Discuss how to protect yourself from fraud andidentity theft. Section 6.4 Identify ways to manage debt problems.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill1
Credit Payments Q: My brother is going to college and has three credit cardswith balances totaling 5,000. He is having trouble payingthe minimum monthly payments. What should I tell him? A: He needs a plan to pay down these debts. Have himcontact the credit card companies and tell them that hewants to pay the debt and maintain good credit. They mayaccept payments of interest only for a few months while hefinds ways to increase his income or cut spending.Go to finance07.glencoe.com to complete the Standard &Poor’s Financial Focus activity.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill2
Section 6.1What Is Consumer Credit?Main IdeaWhat is yourdefinition ofcredit?There are advantages to using consumer creditif you use it correctly.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill3
Section 6.1What Is Consumer Credit?creditan arrangement toreceive cash,goods, or servicesnow and pay forthem in the futurecreditoran entity thatlends moneyconsumer creditthe use of creditfor personalneedsUsing Consumer Credit WiselyWhen you borrow money or charge an item to acredit card, you are using credit. A creditor canbe: A financial institution A merchant An individualConsumer credit is a major force in theAmerican economy, and the use of credit is abasic factor in personal and family financialplanning.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill4
Section 6.1What Is Consumer Credit?Credit Uses and MisusesUsing credit may increase the amount of moneyyou can spend now, but the cost of creditdecreases the amount of money you will have inthe future.That is because you will be paying back: The money you borrowed Any charges for borrowing that moneyPersonal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill5
Section 6.1What Is Consumer Credit?Factors to Consider Before UsingCreditBefore you decide to finance a major purchaseby using credit, consider: Do you have the cash you need for thedown payment? Can you afford the item? Could you put off buying the item for awhile? What are the costs of using credit?Make sure the benefits of making the purchasenow outweigh the costs of credit.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill6
Section 6.1What Is Consumer Credit?Advantages of CreditUsing consumer credit allows you to: Enjoy goods and services now and payfor them later. Combine several purchases, making justone monthly payment. Keep a record of your expenses. Shop and travel without carrying a lot ofcash.If you use credit wisely, other lenders will viewyou as a responsible person.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill7
THINK FIRST Everyone likes to have nice things, but using creditunwisely can lead to problems. What should you consider beforeusing credit?Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill8
Section 6.1What Is Consumer Credit?Disadvantages of CreditAlways remember that credit costs money. Ifyou fail to repay a credit card balance: You can lose your good credit reputation. You may also lose some of your incomeand property, which may be taken fromyou in order to repay your debts.You should always approach credit with cautionand avoid using it for more than your budgetallows.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill9
Section 6.1What Is Consumer Credit?Types of CreditThere are two basic types of consumer credit: Closed-end credit Open-end creditYou may use both types during your lifetimebecause each has advantages anddisadvantages.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill10
Section 6.1What Is Consumer Credit?closed-endcreditcredit as a onetime loan that youwill pay back overa specified periodof time inpayments of equalamounts.Closed-End CreditClosed-end credit is used for a specific purposeand involves a definite amount of money.Examples of closed-end credit include: A mortgage Vehicle loans Installment loans for purchasing furnitureor large appliancesThese types of loans usually carry lower interestrates than open-end credit carries.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill11
Section 6.1What Is Consumer Credit?open-end creditcredit as a loanwith a certain limiton the amount ofmoney you canborrow for avariety of goodsand servicesOpen-End CreditExamples of open-end credit include: Department store credit cards Bank credit cards (Visa or MasterCard)You can use your credit card to make as manypurchases as you wish, as long as you do notexceed your line of credit.line of creditthe maximumamount of moneya creditor willallow a credit userto borrowPersonal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill12
Section 6.1What Is Consumer Credit?Sources of Consumer CreditMany sources of consumer credit are available,including: Commercial banks Credit unionsPersonal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill13
Section 6.1What Is Consumer Credit?LoansA loan is borrowed money with an agreement torepay it with interest within a certain amount oftime. Before going to your local bank to take outa loan, you might want to consider: Inexpensive loans (family members) Medium-priced loans (commercial banks,savings and loan associations, creditunions) Expensive loans (finance companies,retail stores, banks) Home equity loansPersonal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill14
Section 6.1What Is Consumer Credit?grace perioda time periodduring which nofinance chargeswill be added toyour accountfinance chargethe total dollaramount you payto use creditCredit CardsMost credit card companies offer a grace period.If you pay your balance before the due datestated on your monthly bill, you will not have topay a finance charge.The cost of a credit card depends on: The type of credit card you have The terms set forth by the lenderPersonal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill15
Section 6.1What Is Consumer Credit?Types of CardsDebit cards allow you to electronically subtractmoney from your savings or checking account topay for goods or services.Other types of cards include: Smart cards Travel and entertainment (T&E) cards(American Express)Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill16
Section 6.2The Costs and Methods of Obtaining CreditMain IdeaHow would youqualify for a creditcard or loan?You should consider the costs of credit and yourown credit standing when applying for credit.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill17
Section 6.2The Costs and Methods of Obtaining CreditCan You Afford a Loan?Taking out a loan can be a substantial financialburden. Before you take out a loan, make surethat you can afford it: Add up all your basic monthly expensesand then subtracting the total from yourtake-home pay. Consider what you might have to give upto make the monthly loan payment. Use the debt payments-to-income ratioformula to decide whether you can safelytake on the responsibility of credit.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill18
Section 6.2The Costs and Methods of Obtaining Creditnet incomethe income youreceive (takehome pay,allowance, gifts,and interest)Debt Payments-to-Income RatioThe debt payments-to-income ratio is thepercentage of debt you have in relation to yournet income. Experts suggest that you spend nomore than 20 percent of your net income ondebt payments, which include: Credit card payments Loan paymentsYou can calculate your debt payments-toincome ratio by dividing your total monthly debtpayments by your monthly net income.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill19
Section 6.2The Costs and Methods of Obtaining CreditThe Cost of CreditIf you are thinking of taking out a loan orapplying for a credit card, your first step shouldbe to figure out: How much the loan will cost you Whether you can afford itTwo key factors in your decision will be: The finance charge The annual percentage rate (APR)Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill20
Section 6.2The Costs and Methods of Obtaining Creditannualpercentage rate(APR)the cost of crediton a yearly basis,expressed as apercentageThe Finance Charge and the AnnualPercentage Rate (APR)The finance charge, or total dollar amount youpay to use credit, is calculated using the annualpercentage rate (APR).All organizations must state the true APR thatthey charge their customers. This makes it easyto compare the cost of credit.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill21
Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill22
Section 6.2The Costs and Methods of Obtaining CreditTackling the Trade-OffsWhen you select your financing, you will have tomake trade-offs. The various features you willhave to choose between include: The length of the loan The size of monthly payments The interest ratePersonal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill23
Section 6.2The Costs and Methods of Obtaining CreditMajor Trade-OffsSome of the major trade-offs you shouldconsider are: Term versus interest costs (choosinglong-term financing despite the increasedinterest charges) Lender risk versus interest rate (taking amore expensive loan because of itsminimum down payment or low fixedpayments)Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill24
Section 6.2The Costs and Methods of Obtaining CreditReducing Lender RiskTo reduce lender risk and increase your chanceof getting a loan at a lower interest rate,consider the following options: Variable interest rate A secured loan Up-front cash A shorter termPersonal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill25
Section 6.2The Costs and Methods of Obtaining Creditsimple interestthe interestcomputed only onthe principal, theamount that youborrowCalculating the Cost of CreditThe most common method of calculatinginterest is the simple interest formula. There areother variations of this formula, including: Simple interest on the declining balance Add-on interestSimple interest is based on three factors: The principal The interest rate The amount of time the principal isborrowedPersonal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill26
Section 6.2The Costs and Methods of Obtaining CreditCost of Open-End CreditThe Truth in Lending Act requires that open-endcreditors: Inform consumers how the financecharge and the APR will affect their costs. Explain how they calculate the financecharge. Inform you when finance charges on yourcredit account begin to accrue.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill27
Section 6.2The Costs and Methods of Obtaining CreditCost of Credit and Expected InflationInflation reduces the buying power of money.Because of this, lenders incorporate theexpected rate of inflation when deciding howmuch interest to charge.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill28
Section 6.2The Costs and Methods of Obtaining Creditminimummonthlypaymentthe smallestamount you canpay and remain aborrower in goodstandingThe Minimum Monthly Payment TrapLenders often encourage you to make theminimum monthly payment because it will thentake you longer to pay off the loan.If you pay only the minimum amount on yourmonthly statement, you need to: Plan your budget more carefully. Understand that the longer it takes foryou to pay off a bill, the more interest youpay.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill29
Section 6.2The Costs and Methods of Obtaining CreditApplying for CreditWhen you are ready to apply for a loan or acredit card, you should understand the factorsthat determine whether a lender will extendcredit to you.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill30
Section 6.2The Costs and Methods of Obtaining CreditThe Five C’s of CreditWhen a lender extends credit to consumers, itexpects that some people will be unable orunwilling to pay their debts.Most lenders use the “five C’s of credit” todetermine who will receive credit. These C’sare: Character Capacity Capital Collateral Credit historyPersonal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill31
Section 6.2The Costs and Methods of Obtaining CreditCharacter: Will You Repay the Loan?Creditors want to know what kind of person theywill be lending money to. Some questions alender might ask to determine your characterare: Have you used credit before? How long have you lived at your presentaddress? How long have you held your current job?They want to know that you are trustworthy andstable.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill32
One Is EnoughWhen you turn 18, you may start receiving applications forcredit cards. Be a smart consumer and compare interest rates,annual fees, and any other fees. Decide which credit card bestsuits your needs and apply for that one. Toss any otherapplications you get into the trash.Why should you get the best (or lowest) interest rate for a creditcard?Personal Finance UnitUnit22 ChapterChapter66 20072007Glencoe/McGraw-HillGlencoe/McGraw-Hill3333
Section 6.2The Costs and Methods of Obtaining CreditCapacity: Can You Repay the Loan?Your income and the debts you already havewill affect your ability to pay additional debts.A creditor may ask several questions about yourincome and expenses, such as: What is your job and how much is yoursalary? Do you have other sources of income? What are your current debts?Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill34
Section 6.2The Costs and Methods of Obtaining CreditCapital: What Are Your Assets and NetWorth?Lenders want to be sure that you have enoughcapital to pay back a loan. That way, if you lostyour source of income, you could repay yourloan: From your savings By selling some of your assetsA lender might ask: What are your assets? What are your liabilities?Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill35
Section 6.2The Costs and Methods of Obtaining CreditCollateral: What If You Do Not Repay theLoan?Creditors look at what kinds of property orsavings you already have, because these canbe offered as collateral to secure the loan.A creditor might ask: What assets do you have to secure theloan (a vehicle, your home, or furniture)? Do you have any other assets (bonds orsavings)?Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill36
Section 6.2The Costs and Methods of Obtaining Creditcredit ratinga measure of aperson’s abilityand willingness tomake creditpayments on timeCredit History: What Is Your Credit History?Lenders will review your credit history to find outwhether you have used credit responsibly in thepast. Some questions a creditor might ask aboutyour credit history are: Do you pay your bills on time? Have you ever filed for bankruptcy?The information gathered from your applicationand the credit bureau establishes your creditrating.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill37
Section 6.2The Costs and Methods of Obtaining CreditCredit and Equal OpportunityThe Equal Credit Opportunity Act (ECOA) givesall credit applicants the same basic rights.It states that a lender may not discriminateagainst you on a basis of: Race Nationality Age Sex Marital status Redlining (discrimination against youbased on the race or nationality of thepeople in the neighborhood where youlive)Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill38
Section 6.2The Costs and Methods of Obtaining CreditWhat If Your Application Is Denied?If your credit application is denied, the ECOAgives you the right to know the reasons.If the denial is based on a credit report from acredit bureau, you are entitled to: Know what specific information in thereport led to the denial. Contact the credit bureau and ask for acopy of your credit report. Ask the bureau to investigate anyinaccurate or incomplete information andcorrect its records.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill39
Section 6.2The Costs and Methods of Obtaining CreditYour Credit ReportWhen you apply for a loan, the lender will reviewyour credit history closely. The record of yourcomplete credit history is: Your credit report, or credit file Collected and maintained by creditbureausMost lenders rely heavily on credit reports whenthey consider loan applications.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill40
Section 6.2The Costs and Methods of Obtaining CreditCredit BureausA credit bureau is an agency that collectsinformation on how promptly people andbusinesses pay their bills.Credit bureaus get their information from: Banks Finance companies Stores Credit card companies Other lendersPersonal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill41
Section 6.2The Costs and Methods of Obtaining CreditYour Credit FileA typical credit bureau file contains your: Name Current and previous address Social Security number and birth date Employer, position, and income Previous employer Homeowner or renter status Checks returned for insufficient funds Detailed credit informationPersonal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill42
Section 6.2The Costs and Methods of Obtaining CreditFair Credit ReportingFair and accurate credit reporting is vital to bothcreditors and consumers.The Fair Credit Reporting Act: Regulates the use of credit reports Requires the deletion of out-of-dateinformation Gives consumers access to their files aswell as the right to correct anymisinformation that the files may include Places limits on who can obtain yourcredit reportPersonal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill43
Section 6.2The Costs and Methods of Obtaining CreditWho Can Obtain a Credit Report?Your credit report may be issued only toproperly identified persons for approvedpurposes. It may be: Supplied in response to a court order orby your own written request Provided for use in connection with acredit transaction or some otherlegitimate business needYou may obtain a copy of your credit report freeof charge if you have been denied credit.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill44
Section 6.2The Costs and Methods of Obtaining CreditTime Limits on Unfavorable DataMost of the information in your credit file may bereported for only seven years. If you havedeclared personal bankruptcy, that fact may bereported for ten years.A credit reporting agency cannot discloseinformation in your credit file that is more thanseven or ten years old unless: You are being reviewed for a creditapplication of 75,000 or more. You apply to purchase life insurance of 150,000 or more.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill45
Section 6.2The Costs and Methods of Obtaining CreditIncorrect InformationIf you think a credit bureau may be reportingincorrect data from your file: Contact the bureau to dispute theinformation. Be sure the credit bureau changes orremoves the incorrect items.If you challenge the accuracy of an item on yourcredit report, the bureau must remove the itemunless the lender can verify that the informationis accurate.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill46
Section 6.2The Costs and Methods of Obtaining CreditLegal ActionYou have a legal right to sue a credit bureau orcreditor that has caused you harm by notfollowing the rules established by the Fair CreditReporting Act.If the agency or the user is found guilty, theconsumer may be awarded: Actual damages Court costs Attorneys’ feesPersonal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill47
Section 6.3Protecting Your CreditMain IdeaHow could youprotect yourcredit?You must take action to protect your credit if youdiscover billing errors, have purchase disputes,or experience identity theft.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill4848
Section 6.3Protecting Your CreditBilling Errors and DisputesIf you want to protect your credit rating, yourtime, and your money, you need to know how tocorrect mistakes that may pop up in your creditdealings.To dispute billing errors, you should: Notify your creditor in writing. Include any information that mightsupport your case. Pay the portion of the bill that is not inquestion.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill49
Section 6.3Protecting Your CreditProtecting Your Credit RatingAccording to law, a creditor may not: Threaten your credit rating or do anythingto damage your credit reputation whileyou are negotiating a billing dispute Take any action to collect the amount inquestion until your complaint has beenansweredPersonal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill50
Section 6.3Protecting Your CreditDefective Goods and ServicesAccording to the Fair Credit Billing Act, you maytell your credit card to stop payment if: You purchase a defective item. The store will not accept a return.You must have made a sincere attempt toresolve the problem.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill51
Section 6.3Protecting Your CreditCredit and Stolen IdentityWhen imposters use your personal informationfor their own purposes, they are committing acrime, sometimes called “identity theft.”You may not even know that your identity hasbeen stolen until you: Get bills for a credit card account younever opened See charges to your account for thingsthat you did not purchasePersonal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill52
Section 6.3Protecting Your CreditProtecting Your Credit from Theft orLossLost credit cards are a key element in creditcard fraud. To protect your card, you should: Be sure that your card is returned to youafter you make a purchase. Keep a record of your credit card number. Notify the credit card companyimmediately if your credit card is stolen.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill53
Section 6.3Protecting Your CreditKeeping Track of Your CreditYou can take steps to stop or prevent identitytheft by: Immediately closing any accountsaccessed by an identity thief Insisting on password-only access whenopening new accounts Stopping payment on stolen or misusedchecks Canceling a lost or stolen ATM card andgetting another one with a new PINStay alert to new instances of identity theft.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill54
Section 6.3Protecting Your CreditGovernment Agency ProtectionIf you continue to experience identity-theftproblems after taking these steps, contact thePrivacy Rights Clearinghouse of the FederalTrade Commission (FTC).The FTC: Cannot resolve individual problems forconsumers Can against against a company if it seesa pattern of possible law violationsPersonal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill55
Section 6.3Protecting Your CreditProtecting Your Credit Information onthe InternetAlthough you cannot control fraud or deceptionon the Internet, you can take steps to recognize,avoid, and report it. These steps include: Using a secure browser Keeping records of your onlinetransactions Reviewing your monthly bank and creditcard statements Reading the privacy and security policiesof Web sites you visit Keeping your personal information private Not downloading files sent to you bystrangersPersonal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill56
Section 6.3Protecting Your Creditcosigningagreeing to beresponsible forloan payments ifthe other personfails to make themCosigning a LoanThink carefully before cosigning a loan. If youcosign a loan and the borrower does not pay thedebt, you may have to pay: Up to the full amount of the debt Any late fees or collection costsIf the debt is not repaid, that fact will appear onyour credit record.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill57
Section 6.3Protecting Your CreditComplaining About Consumer CreditIf you believe that a lender is not following theconsumer credit protection laws: First try to solve the problem directly withthe lender. Use more formal complaint procedures ifthat fails.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill58
Section 6.3Protecting Your CreditConsumer Credit Protection LawsIf you decide to file a lawsuit against a creditor,you should be aware of the various consumercredit protection laws listed here: Truth in Lending and Consumer LeasingActs Equal Credit Opportunity Act (ECOA) Fair Credit Opportunity Act Fair Credit Reporting Act Consumer Credit Reporting Reform ActPersonal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill59
Section 6.3Protecting Your CreditYour Rights Under Consumer CreditLawsIf you believe that you have been refused creditbecause of discrimination, you can take one ormore of the following steps: Complain to the creditor. Let the creditor know that you are awareof the law. File a complaint with the government. Sue the creditor if all else fails.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill60
Section 6.4Managing Your DebtsMain IdeaWhat correctivesteps would youtake if you wereexperiencing thedebt troubleslisted here? (Seenext slide.)If you experience the warning signs of debtproblems, there are several options available tomanage your finances.Video Clip: Credit ProblemsPersonal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill6161
Section 6.4Managing Your DebtsSigns of Debt ProblemsSome people who seem to be wealthy are justbarely keeping their heads above waterfinancially. They may: Lack self-discipline and do not controltheir impulses Use poor judgment Fail to accept responsibility for managingtheir moneyPersonal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill62
Section 6.4Managing Your DebtsThe Warning SignsThe following are some warning signs of beingin financial trouble: You make only the minimum monthlypayment on credit cards. The total balance on your credit cardsincreases every month. You miss loan payments or often paylate. You use savings to pay for necessitiessuch as food and utilities. You borrow money to pay off old debts. You exceed the credit limits on yourcredit cards.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill63
Section 6.4Managing Your DebtsDebt Collection PracticesCreditors will often turn their bad debts over todebt collection agencies.The Federal Trade Commission, however,enforces the Fair Debt Collection Practices Act(FDCPA), which: Prohibits certain practices by debtcollectors Does not erase the legitimate debts thatconsumers owe Does control the ways in which debtcollection agencies do business and dealwith consumers in debtPersonal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill64
Section 6.4Managing Your DebtsFinancial Counseling ServicesIf you are having trouble paying your bills andneed help, you have several options. You can: Contact your creditors and try to work outan adjusted repayment plan. Contact a non-profit financial counselingprogram, such as the Consumer CreditCounseling Service, which operatesnationwide.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill65
Section 6.4Managing Your DebtsConsumer Credit Counseling ServiceThe Consumer Credit Counseling Service(CCCS) is concerned with preventing problemsas much as it is with solving them.As a result, its activities are divided into twoparts: Aiding families with serious debtproblems by helping them manage theirmoney better and setting up a realisticbudget Helping people prevent indebtedness byteaching them the importance of budgetplanning, educating them about thepitfalls of unwise credit buying, andencouraging credit institutions to withholdcredit from people who cannot afford itPersonal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill66
Section 6.4Managing Your DebtsOther Counseling ServicesIn addition to the CCCS, you can sometimesfind nonprofit credit counseling services through: Universities Credit unions Military bases State and federal housing authoritiesThese organizations usually charge little tonothing for their assistance.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill67
Section 6.4Managing Your Debtsbankruptcya legal process inwhich some or allof the assets of adebtor aredistributed amongthe creditorsbecause thedebtor is unableto pay his or herdebtsDeclaring Personal BankruptcyAs a last resort, an individual can declarebankruptcy. Declaring bankruptcy is a last resortbecause it severely damages your credit rating.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill68
Section 6.4Managing Your DebtsThe U.S. Bankruptcy Act of 1978You have two choices in declaring personalbankruptcy: Chapter 7 (a straight bankruptcy) Chapter 13 (a wage-earner planbankruptcy)Both choices are undesirable, and neithershould be considered an easy way to get out ofdebt.Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill69
Section 6.4Managing Your DebtsUsing a LawyerChoosing a bankruptcy lawyer may be difficult.Some of the least reputable lawyers make easymoney by handling hundreds of bankruptcycases without considering individual needs.You should get recommendations from: Friends Family Employee-assistance programsPersonal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill70
Section 6.4Managing Your DebtsEffects of BankruptcyPeople have varying experiences
Personal Finance Unit 2 Chapter 6 2007 Glencoe/McGraw-Hill 1 Chapter 6 Consumer Credit What You’ll
