Pillar Three

Credit & Borrowing Money


Credit card borrowing is responsible for a huge increase in the number of bankruptcies filed. Not to mention, teenagers account for the largest increase in the bankrupcty filings in the last 5 years. Apparently, 83% of all college students have credit card accounts, and 42% have 4 or more accounts. Depending on the limits of each card, you could end up with thousands of dollars of debt and no means of paying them off. You should understand the risks involved in credit cards and the costs. (Of course, if you pay off your monthly balance in full each month, there are no costs to you over and above the yearly fee to having the card.) In fact the issue of credit card debt has grown enough to warrant documentaries funded by the federal government on how to maintain a good credit rating and federal regulations mandating that College bookstores no longer give out free credit card applications with books, but rather information on maintaining good credit. Public Radio's MarketPlace produced a show on Wednesday, August 27, 2003 on this issue.

If you are in a place where hearing an audio file will not annoy your neighbors, check out the marketplace report on credit card debt and college students, you'll be amazed at your peers' understanding of their finances.

Credit Card Debt Adds UP
There are tools to help you visualize how credit card debt can become crippling. Use Kiplinger loan payoff calculator to examine how long an initial purchase of $500 (you just have to have all new stuff for your dorm room) and a monthly minimum payment of $30 will take to pay off. Also, notice how much "more" you paid than the purchase price of the items (i.e. how much did interest did you pay in addition to the $500?) Print out your results and hand them in with the worksheet.
Another common type of borrowing comes from loans. Mortgages are home loans, but more commonly most people will take out a car loan to buy a car. In fact, establishing good credit management on your credit card accounts can make it easier to obtain a car loan at favorable rates (i.e. lower interest and better montly payments). Furthermore, good history on a car loan, makes obtaining a mortgage easier. Not only does good credit history make sense for future borrowing, many employers are checking your credit history when they do reference checks. The assumption is that someone who is profligate with their own credit accounts is more of a risk in an employment setting. Good credit in college can help ensure you get a job later down the line.
  • Car loans: Kiplinger also makes a calculator to help you evaluate loan rates and whether you can afford a car loan. Imagine, you know you want a miata but you need a 20,000$ loan; can you afford the monthly payments? This site will give you the calculations to help you determine the payments on various loan terms. If you want to play around more you might even see what current loan terms look like (length of loan versus interest charged).Kiplinger Car loan calculator


  • Home loans: Besides credit cards and car loans, home loans, or mortgages, are some of the most common types of borrowing in a comsumer's lifetime. NASD has created an easy calculator program to look at long-term loan issues. Current interest rates are about 6% for mortgages (with a 30 year term) and 3% for a car loan (with a 5 year term). See how much a montly payment loans of say $100,000 for a house, or $10,000 for a car would be. Can you afford such monthly payments? (Please note that the calculator does not want you to include commas in your numbers.) Link to Loan calculator


Identity Theft

Your understanding of credit would not be complete without some introduction to the world of consumer fraud. Identity theft and consumer fraud are on the rise and there are some simple ways (and lots of more complicated ones!) to protect yourself. I have compiled some good resources on how to learn more about identity theft.


Answer these questions and hand them in with the worksheet.
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