Money IN/Money OUT INSTRUCTOR'S GUIDE

Session Two:
Using Credit Means More Money OUT

GOAL: To encourage participants to limit the use of credit and become wise consumers of credit

Learner Objectives

Participants will be able to:

• Compare annual percentage rates charged on credit
• Understand how to request a personal credit report
• Set a personal credit limit
• Recognize warning signs of credit abuse

Materials Needed

• 2-a Use Your Noodle or Lose Your Money handouts
  
• 2-a Answers for the noodle-impaired instructor
  
• 2-b Purchase Options and Credit Reports handouts

Transparencies or handouts of:

• 2-c Two credit card or charge card contracts (not included)
• 2-d Two installment loan contracts (not included)
• 2-e Sample personal credit report (via http://www.equifax.com -then click on Equifax Credit Profile icon, scroll to ECP icon and click on "more," note ECP icon again and click on "example") and FTC credit scoring brochure (http://www.ftc.gov/bcp/conline/pubs/credit/scoring.htm)
  
• 2-f Your Credit Inventory handouts
  
• 2-g Is Your Credit Condition Critical? handouts (optional)
  
• 2-h Monthly Spending Record handouts
• 2-i Credit Tracking Record handouts
  
• 2-j PowerPay (order in advance if you decide to let participants use the power payment principle to help them get debt under control)
• Calculators (if available)
• Overhead projector, if using transparencies
• Pens or Pencils

1. Getting Started.

As participants arrive, give them each a copy of Use Your Noodle or Lose Your Money (2-a). Allow about five minutes for them to complete.

Go over the answers (2-a Answers). If they got most of the questions correct, they have what it takes to win the credit game we all play. If they missed a lot of the questions, it may be because people often allow themselves to be misled. We need to learn to look out for traps and use the information we have.

Go back to the last question on the handout - a simple example of the cost of credit. Ask them to define credit. Agree as a group on a definition of credit. Ask what credit costs. How do you compare the cost of credit?

2. Explain Annual Percentage Rate (APR).

APR is the best way to compare the cost of credit. If you are thinking of accepting a credit card offer or financing a purchase like a car or washing machine, how do you know it is a good deal? Lenders must tell you the annual percentage rate on a loan or an account and the total finance charge in dollars. The APR allows you to accurately compare different kinds of loans and accounts. You can comparison shop for credit just as you do for the best price on any product. Don't think that every credit card company, or every finance company, charges the same APR. Always consider your options.

Distribute and discuss copies of Purchase Options for a Color TV (2-b). Point out the high cost of the rent-to-own option.

Show overhead transparencies or distribute copies of two credit or charge card contracts (2-c) and two contracts for financing a purchase such as a suite of living room furniture (2-d). Compare the APR and point out any other differences.

Do you know how many credit accounts you currently have? Do you know exactly how much you owe on each account? Do you know what the APR is on those accounts? Do you know how to find out?

3. Explain what is in a personal credit report.

Show the overhead transparency of a credit report or distribute a sample report and briefly explain the types of information included in the report (2-e).

[You can access the Equifax Credit Profile Sample as follows:
Go to http://www.equifax.com
Click on the Equifax Credit Profile icon
Scroll down to the same icon at the lower left and click on the word "more"
Note the same icon at the top of the next page and click on "example"
Print out the Equifax Credit Profile Sample.]

Did you know that credit bureaus have all that information and more about you on file? Fortunately, access to the information is tightly controlled. But you do have the right to see the information and request that any errors be corrected.

Urge everyone to request a personal copy of their credit report. Telephone numbers and web addresses for the three credit reporting agencies are listed on the lower half of handout 2-b, Credit Reports. (This information is also included in handout 6-d.) It takes a few days and may cost a few dollars, but it is worth the wait and cost. When your report comes, you have the right to understand everything that is on your report.

Distribute the handout Your Credit Inventory (2-f). Ask participants to complete the form before their individual credit reports come. This will help them check the accuracy of their credit reports and will be a lifesaver if credit cards are lost or stolen.

4. Explain how to determine debt load.

Show how to calculate debt load with directions at the bottom of Your Credit Inventory (2-f) . Explain what a recommended maximum debt load is: total monthly payments should be no more than 20% of your monthly take home pay OR you should be able to repay your total debt with 10% of your take home pay within 24 to 36 months.

5. Distribute and explain Is Your Credit Condition Critical?

(Optional 2-g)

6. Summarize today's session:

• Credit is not money coming in, but a commitment to pay a new debt plus interest.
• It is necessary to control the amount of credit you use.
• You can compare interest rates by comparing the APR.
• You should be aware of the information the credit bureaus have about you and check to see if it is correct-asking for corrections if necessary.

7. Review last week.

Ask about record keeping for the previous week. Distribute and explain Monthly Spending Record (2-h) and Credit Tracking Record (2-i). Ask participants to continue their record keeping for another week, using these forms. They should transfer last week's information to these forms so there are fewer papers to shuffle.

8. Challenges.

Ask participants to:

• do a credit inventory, calculating their debt load and their monthly debt payment
• identify credit accounts that they can close or pay off. (This information will be for their use only. You will not see it or have access to it.)
• request a credit report from the service most often used in your area.(see 2-b)
• consider whether they want to use the PowerPay program to reduce their debts in the shortest time at the lowest cost. Give the PowerPay input form to those who want to use it, and explain the procedure and schedule for running the program.

9. Preview.

If your debt load is already at an acceptable level, come to the next session to see what you can do to make your money go farther. If your debt level is higher than you would like, come to the next session to see how to bring it down as quickly as possible!

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Other Resources

• Department of Family & Consumer Sciences
• Family Resource Management
• North Carolina Cooperative Extension Service

Return to Money IN/Money OUT Home Page

This page (http://www.ces.ncsu.edu/plymouth/mimo/session2Net.html) was created by Jan Lloyd (Extension Area Specialist, Family & Consumer Sciences), Michele Simpson(Program Assistant, Famiy & Consumer Sciences), and Bruce A. Emmons(Area Specialized Agent, Information Management).

Date Created April 17, 2000.
Last revised on June 26, 2001.

Published by North Carolina Cooperative Extension Service

Distributed in furtherance of the Acts of Congress of May 8 and June 30, 1914. Employment and program opportunities are offered to all people regardless of race, color, national origin, sex, age, or disability. North Carolina State University at Raleigh, North Carolina A&T State University, U.S. Department of Agriculture, and local governments cooperating.