4b 
Let's do an exercise. We’re going to evaluate an offer. You’re
buying new living room furniture The cash price is $799.95. Sound
familiar? It's $800. The salesman explains that can pay as little as
$80 down plus $3 a day for one year.  This type of offer almost
always costs you more, while generating more profits for the
seller!  The only way to know for sure is to do the math. If we take
$3 times 365 days that’s $1,095 plus the original $80 down is a
total price of $1,175. Which one looks better now? The finance
price is $375 more than the cash price and that $375 is nearly
HALF the $800 price of the item we're financing. The important
thing is that we overcome our natural impulse to go for the offer
that "sounds" good. We do that by doing the arithmetic and
thinking about whether or not the item we’re buying is a good use
of credit. We've just looked at how interest rates and the length
of the loan affect what we pay for credit. And we know that we
should always do the arithmetic on offers that sound good. There
are more types of credit than we can cover in this video, but let's
go over a few of the main types.  Installment Loans, like car loans
and standard mortgages, are for a set, fixed amount. Interest is
added, and the total is divided over the length of the loan so the
payments are equal. Installment loans can be secured or
unsecured. A secured loan is one where the item being financed
has a lien on it, securing your payment. Vehicle financing and
mortgages are secured loans because if borrowers don't live up to
all of the contract terms, the lender can repossess or foreclose. An
unsecured loan has no property or collateral securing the loan's
repayment. Because unsecured loans carry more risk for the
lender, they usually cost more in interest or require a higher level
of credit-worthiness.  Revolving credit is credit that allows you to
borrow as much or as little as you need at any given time, up to a
pre-set limit. Credit cards are the most common example of
revolving credit. When you pay off your balance, your credit
"revolves" back up to your limit. Revolving credit usually comes at
a higher interest rate than an installment loan and the interest is
calculated differently, and according to the particular contract.
There are many other types of credit, including service credit from
utility companies and leases for apartments or vehicles. There are
also methods of payment that aren't true "credit" since you don't
borrow any money. A debit card, which takes money directly from
your checking account, is one. A store value card, like a gift card,
is another. Debit cards do carry more risk if you're the victim of
fraud, or if your card is lost or stolen. Credit cards are safer, but
are only recommended if you use them so that you pay the full
amount owed, on time, each month. Do you know that credit
cards are the most common and profitable type of credit. Well,
even with bankruptcy write-offs, the credit card industry rakes in
billions in profit.  Now, I want each of you to ask yourselves why
do you need credit? Remembering "needs" versus "wants," what
do you NEED right now that you can't pay cash for or save for? Is
it to pay for your daily needs: utilities, rent, food? If that's true,
you need to make changes in your spending plan until it balances.
The bottom line is don't put anything on a credit card that you
don't already have the cash to pay for. Save your use of credit for
your most important goals and pay cash for everything else.  We
all know that credit card interest really adds up. A government
study shows that households with credit card debt owe
approximately 15 thousand dollars on their cards. The average
interest paid on credit cards by these households is 26 hundred
dollars per year. That’s an expense that can be avoided. There are
many reasons why Americans can find themselves in debt. The
rising costs of living expenses, most notably food and medical
costs, unbalanced budgets, past years of poor employment rates
and low income growth, just to name a few.  Whatever the
specific reason, it is advantageous to return to your spending plan
and make decisions that will allow you to avoid credit card debt in
the future.  Just over 50% of the households that carry credit card
debt report that they pay the minimum payment that is due. We
call this the minimum payment trap because it keeps you in debt
longer and paying more in interest. Minimum payments on credit
cards do not support anyone's goals, or dreams. Minimum
payments are a recipe for financial DISASTER! Let's look at one
example: A credit card balance of just one thousand dollars, a 17%
interest rate, and a minimum payment of 2% of the balance.
Assuming you don't charge anything else, AND you pay the
minimum every month, do you know how long will it take you to
pay off this one thousand dollars?  17 years! 17 years to pay off
just a thousand dollars and during that 17 years, you will pay a
total of $1,590 in interest!! That's more than you charged in the
first place! That's the trap. Here's how the numbers works. The
minimum payment is a percentage of your balance. So if you stop
charging, as your balance goes down, so does your minimum
payment, but the TIME you are in debt increases. And that TIME
means you pay more interest, and the credit card company makes
more profit.  And it's not much better if you pay more than the
minimum!  Suppose you charge $3,000 on a credit card then
destroy the card so you won't charge anymore. The interest rate
is 19%. You decide to pay $60 a month every month, no matter
what the minimum payment is. Look at the numbers. You'll be
paying for 8 years! And you'll pay almost $3,000 dollars in interest
for a loan of $3,000. That's almost $6,000! Amazing, isn't it? And
that's assuming you don't charge one more thing AND you don't
have any late fees! In 2009 there was a law passed to protect
consumers called the Credit Card Accountability and Disclosure
Act also known as the CARD Act.  The highlights of the protections
are as follows:  Interest rates on new transactions can only
increase after the first year. Promotional rates must last at least
six months. Before any changes in terms such as interest rate can
occur, issuers need to give a 45 day notice of the change. Interest
rate hikes on existing balances are Only allowed under certain
conditions such as a promotional rate ending, a variable rate, or
the card holder makes a late payment. If an interest rate does
increase due to late payments, the lower rate must be reinstated
after 6 months of on-time payments. There are limits on
‘Universal defaults’, this is the practice of raising rates due to
issues with other creditors. Consumers have a right to opt out of
certain changes in terms but would have to close their account
and pay off the balance in about five years under the old terms. 
Young adults (under 21 years of age) are banned from credit cards
unless they have a cosigner or can show proof of income to pay
off credit card debt. Also credit card promoters need to stay 1000
feet from a college campus if offering gifts. Consumers have 21
days to pay their bill after the bill is mailed or delivered. Due dates
must be the same each month and issuers cannot set arbitrary
deadlines for payments such as a time of day. No late fees can be
charged for payments due on holidays or weekends or when the
issuer is closed for business. The highest interest rate balance
needs to be paid first. Subprime card issuers cannot charge more
than 25% of the available credit limit on fees charged to open the
account. Credit Card issuers must disclose how long it would take
to pay off a balance if only making minimum payments and how
much the card holder would need to pay in order for their balance
to be paid off in 36 months. Late fees are capped at $25, but can
rise if the cardholder is late more than once in a six month period.
Gift cards cannot expire before five years. An unused fee can be
charged only after one year. There is no limit on the amount of
the fee, but not more than one fee per month can be charged.
Please note there are no caps on interest rates creditors can
charge. Business and corporate cards are not covered by these
protections. Also credit card issuers have the right to close
accounts and reduce credit limits without warning if they choose.
As we close this unit, we can sum up the key to using credit wisely
like this: "Less means more!" Live on less than your income and
use credit sparingly and wisely. Spending less will leave you more
for your financial goals! Now let's do a quick review of how to use
credit wisely and look at some debt warning signs. Credit is
borrowing money. The lower the interest rate or the shorter
length of repayment time, the less expensive borrowing money
will be for you. Keep vehicle loans 4 years or less to avoid owing
more than it's worth. Before you use credit, ask yourself: Can I
wait, save, and pay cash? Will using credit help me reach my
financial goals? Will the thing I'm buying on credit have resale
value or useful life when I've paid off the loan? Avoid the
minimum payment trap on credit cards and be careful when using
home equity credit. Don't put your home in jeopardy. It's
important to know and stay alert to signs that you may be getting
into debt trouble.  We’re creatures of habit and we can be
tempted. Despite our best intentions, debt can creep back up on
us. An emergency fund and enough insurance can protect against
debt once you have a balanced spending plan. But be on guard.
Here are some warning signs that you may be getting into trouble:
An unbalanced spending plan. Worrying about your debt or your
financial situation. Using credit to fund simple living expenses.
Carrying a balance on credit cards. Making the minimum monthly
payments on credit cards is a debt warning sign. Paying off one
card with another is a bad sign. And, finally, having no emergency
fund is a warning sign.  The main thing is just to be aware and on
guard against debt and no matter what don't be embarrassed to
get help.