PF 5- REVIEW

To calculate how much interest you'd pay on your balance every month, find the 'periodic rate' and multiply that rate by your balance. Calculate the periodic rate by dividing the 'APR' by twelve.

For example, if the credit card has an APR of 18 percent, you can divide the 18 percent by twelve to calculate the periodic rate. 18% / 12 = 1.5%

FAFSA

Free Application for Federal Student Aid; an application to obtain financial aid, such as grants or student loans

FHA loan

a government-backed loan which makes it easier for some people to qualify for a home

bankruptcy

a legal statement confirming that an individual is unable to pay lenders; involves a court process that protects people while they repay debts or the court removes the debts

unsecured loans

a loan for which the individual does not offer collateral; sometimes called personal or signature loans

secured loans

a loan for which the individual offers collateral; if the loan is not paid back as agreed upon, the individual gives up the collateral to the lender

installment loan

a loan that is repaid in equal monthly payments for a specific period of time

mortgage

a loan used to buy a home

credit score

a number that lenders look at to see if an individual is creditworthy; also called a FICO score

grace period

a period of time before the credit card company starts charging interest

co-signer

a person who signs a loan with another individual

collateral

a piece of property that a person promises to give the lender if a loan is not paid

garnishment

a process through which a lender obtain moneys from an individual's employer in order to pay the individual's unpaid debt

foreclosure

a process through which a lender tries to regain property because the borrower has not made payments

credit report

a report prepared by a credit bureau which shows details of an individual's credit history; it is used by a lender to determine if an individual is creditworthy

inquiry

a request for a person's credit report

balloon mortgage

a short-term mortgage in which small payments are made until the completion of the term, at which time the entire balance is due

service credit

a type of credit or promise to pay for services, such as phone, electricity, and water

warranty

a written guarantee given to the purchaser of a new appliance, automobile, or other item by the manufacturer or seller, usually specifying that the manufacturer will make any repairs or replace defective parts free of charge for a stated period of time

escrow

an account with a financial institution used to pay taxes and insurance

debt

an amount of money that is owed to a bank, a credit card company, a store, or another individual

variable rate

an interest rate that may change during the repayment period

fixed rate

an interest rate that remains the same through the entire loan repayment period

Better Business Bureau

an organization whose purpose is to receive and investigate customer complaints of dishonest business practices and provide complaints and reports from investigations to the public

consumer

any individual who uses or owns goods or services

To calculate the monthly payment, you can find an online loan calculator, use a spreadsheet, or use a formula. Here is the formula to calculate the monthly payment:

monthly payment = P x (J / (1 - (1 + J)N))

capacity

the ability to make payments based on a person's income and bills

debt-to-income ratio

the amount of debt compared to income; a ratio used to determine if you have excessive debt

previous balance

the amount owed at the end of the previous billing period

lender

the bank or company that lends money on the condition that it will be paid back

periodic rate

the interest rate you are charged for one payment period; usually the APR divided by 12

minimum payment

the least amount of money that must be paid at the end of a month

property manager

the person in charge of renting an apartment or other rental property; sometimes called a landlord

advertising

the practice of calling public attention to one's product or service by paying for announcements in newspapers and magazines, over radio or television, on billboards, on the internet, or in other places

repossession

the seizing of the collateral or item that secured the loan when the debt has not been paid

Truth in Lending Disclosure

the statement that federal law requires a credit card company to provide it customers which explains the card's terms

loan repayment period

the time it will take to repay a loan

home equity

the value invested in a home; the amount owed for the home subtracted from the total value of the home

lease

to give temporary possession to another individual a contract to lend property to another for a specific amount of time and for a certain price

rent

to take possession of and use property by paying a set, usually regular amount

capital

your net worth; the value of the items you own and the cash you have

"Credit Problems" One of the best ways to figure out if you have excessive debt is by calculating the debt-to-income ratio. The formula is:

Debt-to-income ratio = debt / income x 100

financial aid

money used to support students with the costs of higher education

The consequences of credit problems and excessive debt are:

- low credit score, - 'subprime lending'; - 'foreclosure', - 'garnishment', - judgment and lien; - repossession, and/or - 'bankruptcy'.

Students have several options for paying for college. Some options are:

- plan ahead and save using a 529 education savings plan; - work during college and pay as you go; - 'obtaining grants'; - 'earn scholarships'. - take out student loans Student loans should only be used as a last resort because you're required to pay back the money.

PF 5- Review: Sophie's credit card has an APR of 19 percent. What is the periodic rate?

- 1.58 percent - .79 percent - 19 percent - 2.28 percent answer: - 19 percent

PF 5- Review: Owen makes $3,000 per month. He spends $300 on credit card payments and $350 on an auto loan. What is his debt-to-income ratio?

- 50 percent - 32 percent - 4.6 percent - 22 percent answer: - 22 percent $300+$350=$650 $650/$3,000=0.216666667 0.21666666666667x100=21.67

When selecting the best credit card, it's important to take into consideration the following items:

- APR - fees charged by the bank, such as annual fees - 'grace period'

"Credit" Avoiding Debt The Bible tells us many times that Christians should avoid debt. There are several biblical principles in regard to debt. These include the following:

- Debt should be avoided whenever possible. - Avoid long-term debt. - Don't make promises without having a sure way to pay. - When debt is unavoidable, the borrower has an absolute commitment to repay.

PF 5- Review: Which of the following is not a biblical principal as far as debt is concerned?

- Debt should be avoided whenever possible. - Only accumulate long-term debt. - Don't make promises without a sure way to pay. - The borrower has an absolute commitment to repay. answer: - Only accumulate long-term debt.

"Loans" The three parts of the loan that determine how much you pay are:

- principal, - finance charges, and - loan repayment period.

Here are some continuing costs:

- rent - other fees, such as parking, storage, or pet fees - utility bills - optional renter's insurance

When you rent an apartment, you'll probably be asked to sign a 'lease'. The lease is the contract that contains information about how much the rent is and how long you are obligated to rent. The lease protects you and the property manager by stating all the facts in your agreement. Here are some specific questions to think about when determining if you're ready to buy a house:

- Do you have a steady income and stable job? - Have you been employed on a regular basis for two to three years? - Do you have a good credit report and credit score? - If you buy a home, will you be able to pay your bills and keep your debt-to-income ratio less than 30 percent? - Do you have the ability to make the mortgage payment every month, plus handle additional costs for taxes, insurance, maintenance, and repairs? - Do you have enough money saved for a down payment and closing costs? - Do you have enough money saved up to cover two to three months of mortgage payments in case you lose your job?

Rent or Buy Here are some questions you should ask yourself to determine if you are ready to rent an apartment:

- Do you have enough money and income to pay for all the costs? - Is the place you can afford safe? - Do you have a good credit score? Is your job stable? - Do you have enough money saved up to cover two to three months rent in case you lose your job? - Are you ready to live on your own and take care of your daily needs, such as cooking, waking up on time, and shopping for necessary items?

PF 5- Review: Christina was getting harassed at work by companies to which she owed money. What act protects her from this?

- Equal Credit Opportunity Act - the Truth in Lending Act - the Fair Debt Collection Practices Act - the FDIC Deposit Regulations Act answer: - the Fair Debt Collection Practices Act

Why do good stewards avoid debt? There are several reasons.

- First, having debt when it is avoidable goes against biblical principles. - Second, debt is expensive. - Third, having debt can negatively affect contributing generously to God's work.

Here are strategies you can use to avoid debt:

- Maintain a budget. - Save. - Have an emergency fund. - Be disciplined to buy only what you can afford. - Pay with cash instead of credit cards. - Research the best prices. - Plan how you'll spend your money. - Earn extra income to pay for special purchases. - Instead of shopping, spend your free time doing hobbies, sports, or volunteering.

In which:

- P = Principal - R = Rate in decimal form - N = Number of payments

In which:

- P = principal, the initial amount of the loan - I = the annual interest rate - J = monthly interest in decimal form or APR / 12 - N = loan period in number of months

"Credit Cards" When someone makes purchases using a credit card, he has three options for paying the monthly bill.

- Pay the bill in full. This is the best option because one pays no interest. - Pay the minimum payment. This is the worst option because one pays the most in interest. - Pay an amount somewhere between the minimum balance and the total amount due.

Good stewards use credit responsibly. Here are some tips for using credit responsibly and maintaining creditworthiness.

- Protect your credit card and account numbers to prevent unauthorized use. - Quickly report lost or stolen credit cards. - Open only two to three credit cards. - Only pay for something with a credit card if you can pay the balance when the balance is due. - Look for credit cards that have no annual fees and lower interest rates. - Read the terms of credit carefully and make informed decisions. - Don't take cash advances. They are expensive. - Pay off your total balance each month. If you cannot pay the total balance, try to pay as much as you can over the minimum. - Don't spend more than your credit limit.

PF 5- Review: If the principal on one loan is $1,000 more than another loan, the total cost of the loan is $1,000 more.

- True - False answer: - False

PF 5- Review: If you pay the minimum payment each month, you will quickly pay off your credit card.

- True - False answer: - False

There are rights or acts that protect people who have a savings or checking account and for people who apply for a loan. Here are a few of these acts:

- Truth in Savings Act - Electronic Fund Transfer Act - Expedited Funds Availability Act - the Truth in Lending - Equal Credit Opportunity - the Fair Debt Collection Practices Act (FDCPA) - the Fair Credit Billing Act (FCBA) It's important to know how to access a variety of resources about consumer rights and protection. That way when you need them, you know where to find them. Good resources include the Federal Trade Commission Web site, the Consumer Action Web site, and the U.S. Product Safety Commission Web site.

PF 5- Review: When you finance a car, the car then becomes _____ for the loan.

- a down payment - credit - collateral - the title answer: - a down payment (guess)

PF 5- Review: An account with a financial institution that is used to pay taxes and insurance is called _____.

- an ARM - a balloon loan - an escrow account - PMI answer: - an escrow account

Other Loans Here's a list of the most common types of loans:

- car loan - student loan - home equity loan - small-business loans - personal loans

"Creditworthy" The four basic types of credit are:

- credit cards - service credit - loans - installment credit

Costs involved in a mortgage include:

- down payment, - closing taxes, - interest, - PMI -Private Mortgage Insurance, and - homeowner's insurance.

PF 5- Review: If a lender is not paid and the collateral that secured the loan is taken, this is called _____.

- garnishment - bankruptcy - foreclosure - repossession answer: - repossession

There are upfront costs you'll pay before you move in and continuing costs that you'll pay each month. Here are some upfront costs:

- security deposit - payment of the first month's rent - fees, including application fees and pet deposits - deposits for and costs for connecting utilities - additional fees, such as a non-refundable application fee or a non-refundable move-in fee - moving fees

Mortgages Here are a few different types of mortgages:

- traditional mortgage - ARM-an adjustable-rate mortgage

PF 5- Review: A credit report is a _____.

- written paper from past creditors recommending an individual for more credit - computer generated number that tells if a person is creditworthy - a report prepared by a credit bureau which shows details of an individual's credit history - statement that lists how much you owe on your credit accounts answer: - a report prepared by a credit bureau which shows details of an individual's credit history

Consumer Purchases The purpose of advertising is to show consumers how they could benefit from the product or service. Several different types of sales techniques are used to convince buyers to shop, and some of these sales techniques are deceptive. A 'warranty' is a written guarantee given to the purchaser of a new appliance, automobile, or other item. It specifies that the manufacturer will make any repairs or replace defective parts free of charge for a stated period of time. A warranty has a lot of small print and may have language that is difficult to read. You can use these steps to read a warranty:

1. Identify the time frame or term the warranty applies to. You may find the warranty is good for a certain number of years, until a certain date, or for a certain amount of mileage for car warranties. 2. Locate the sections in the documents that tell you exactly what is covered. 3. Read the section of the document that lists exclusions or what is not covered. In some warranties, it's easier to determine what is covered by understanding what is not covered. 4. Read the section about limitations carefully. This part of the warranty will state certain situations when the product will not be fixed. For example, a product may not be fixed if it was dropped.

To calculate the interest, you can multiply the periodic rate by the balance. For example, if the balance is $2,000, the calculation would look like this:

1.5% x $2,000 = $30

A 'credit report' is used by lenders to determine if you are 'creditworthy'. Lenders do not always look at a complete credit report. Sometimes they rely on one number called a 'credit score'.

A credit score above 620 is good. A score below 620 is poor.

ARM

Adjustable Rate Mortgage; a mortgage that has a fixed rate for a certain amount of time and then has a variable rate that changes periodically

APR

Annual Percentage Rate; the yearly interest rate a credit card company charges a customer for borrowing money

Since there are many costs associated with a mortgage, the mortgage payment is more than just paying back the amount you owe on a home loan. The mortgage payment includes paying the principal, interest, PMI, homeowner's insurance, and taxes. When you open a new mortgage, an 'escrow' account is created. Escrow is a special account at a financial institution for the purpose of paying taxes and insurance.

Mortgage Payment Principal & Interest Financial Instuition Mortgage Payment Insurance & Taxes Escrow Government Insurance company To calculate a mortgage payment, it's necessary to add all the mortgage costs. If you know the cost per year, you'll need to divide by twelve to figure out the monthly payment.

PMI

Private Mortgage Insurance; insurance required for most loans when one makes a down payment of less than 20 percent

Consumer Protection Consumers are individuals who have paid for goods or services. Consumers are protected by rights and should have certain responsibilities. Here are the consumers' rights and responsibilities:

Rights: - Consumers have the right to be safe. - Consumers have the right to receive compensation. - Consumers have the right to choose freely. - Consumers have the right to be heard. - Consumers have the right to be informed. - Consumers have the right to education. - Consumers have the right to service. Responsibilities: - Read instructions on products and use them as intended. - Insist on compensation if you are not satisfied with your purchase. - Consider the impact of your purchases on others and choose products that do not harm the environment. - Take action. Report faulty products, fraudulent activity, and any other violation of consumer rights. - Stay informed about products that you buy in order to be aware of product recalls. - Gather information about products and services before making a purchase in order to be aware of price, quality, and the product specifications. - Be vocal about your desires and any problems that should be addressed.

PF 5- Review: Monica graduated from high school this year and has a steady job. She feels ready to move into her own space and has $1,200 in savings. Does she have enough for a down payment to rent this apartment?

Security Deposit- $500 Application Fee- $10 First Month's Rent- $550 Parking (optional garage)- $30 Electricity- included in the rent Telephone- approximately $36 per month; $40 to connect Water- $26 per month; a deposit of $50 - yes - no answer: - yes

To calculate the total cost of the loan, you can use an online calculator, use a spreadsheet, or use the following formula.

Total cost of loan = P(1+R/12)N

If debt is unavoidable and you need to apply for a loan, visit a loan officer at a financial institution. The loan officer will likely ask you to complete a loan application.

When deciding if you will be approved for a loan, the loan officer will also look at information about 'capacity', 'capital', 'character', and 'collateral' (the 4 Cs of lending).

PF 5- Review: List at least three of the costs that make up a mortgage payment.

Writer: - taxes - principal - interest

PF 5- Review: Name at least four things that smart shoppers do.

Writer: 1. Avoid high-pressure sales techniques and don't take immediate action. Think before you buy. 2. Offers that sound too good to be true usually are. 3. Don't give out your credit card number for any purpose other than to make a purchase. 4. Don't believe statements that a product or service is free, followed by a request that you pay for something. PF 5- Sec. 2: The Cooling Off Rule lets you return an item to a store within one year of purchase.

title

a certificate that indicates who owns something, e.g., a car

lien

a claim to take and hold property until a debt is paid

VA loan

a government-backed loan for veterans

cash advance

cash borrowed from a credit card account, for which credit card companies typically charge fees and higher interest rates

installments

equal payments usually made over several years

creditworthy

having an acceptable credit rating; considered responsible to borrow money

character

how responsible you have been in the past with credit; information from your credit report

finance charges

interest and fees charged for making purchases using a credit card

consumer rights

laws and regulations that protect consumers when they buy products or services

subprime lending

loans with very high interest rates

credit limit

maximum amount of money that an individual is authorized to use

grants

money awarded to a variety of students that does not need to be repaid

scholarship

money for college that does not need to be repaid; offered to students who satisfy certain criteria