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Unformatted text preview: erations Before you use consumer credit, ask yourself: Could I pay cash or make a down payment? Do I want to use savings for this purchase? Is there a comparable, yet cheaper choice? Does purchase fit with my goals and budget? Could I use the credit a better way? Can I postpone this purchase? What are the opportunity costs? What are the dollar and psychological costs? 6 Advantages of Credit You get to buy now Even when funds are low Use for financial emergencies Convenient when shopping Safer than cash Can take advantage of float time May get cash rebates, airline miles, etc. Demonstrates financial stability 7 Disadvantages of Consumer Credit Purchases are more expensive Temptation to overspend Ties up future income Possible financial difficulties Marital issues Potential loss of merchandise due to late or non­payment 8 Types of Credit Closed­End Credit (Repaid at Maturity) Mortgage loan Automobile loans Installment and some home equity loans Open­End Credit Use as needed until reaching line of credit You pay interest and finance charges if you do not pay the bill in full when due Revolving check credit ­ prearranged loan Open end home equity loan 9 Credit Cards vs. Debt Cards What do most people use? What are the advantages/disadvantages of each? 10 Debit Cards Overtake Credit Cards Billions of US $ 20 05 19 95 19 87 $900 $800 $700 $600 $500 $400 $300 $200 $100 $0 Credit Debit Source: Visa Branded Cards 11 Debit Cards Advantages Convenient Don’t have to carry cash or checks Can prevent credit card debt and bad checks Disadvantages Consumer protections...
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