Independent Living
December 8, 2015
 What is a finance charge?
 Explain the 20-10 rule.
 If a questions asks you to find the safe debt load, what are the proper math
steps to do so?
 What are the three borrowing fundamentals from the Debt Slapped video?
 Math problem:
 Harry is a monthly net income of $2,912.00. His fixed monthly expenses consist of
$725 for rent. Harry’s outstanding student loan balance is $9,050 and has a $500
outstanding loan from purchasing a new broom two months ago. What is Harry’s
safe debt load and how much more debt can Harry take on?
 Open-Ended Credit:
 Enables borrower to use credit up to a stated limit
 Closed-End Credit:
 A loan for a specific amount that must be repaid in full, including
all finance charges, by the specified due date
 Service Credit:
 A service provided which will be paid later
 As payments are made, the limit allows for more use of credit
 Can be used again and again, as long as the balance does not
exceed the credit limit
 Types of open-ended credit:
 Charge Cards
 Revolving Accounts
 https://www.youtube.com/watch?v=q7mVlnykqbU
 The debtor (cardholder) is obligated and required to pay the
balance in full by specified due date
 Cannot incur interest charges and statement doen’t come with
minimum payments
 Not paid on time = hefty late fees and other penalties may
apply
 Often include rewards and rebates based on purchases
 Percentage of dollar amount charged
 Gift items of value
 Cardholder has the option of paying the balance in full by the
due dates or making payments
 Payment installments must be equal to or greater than stated minimum amount
 Minimum payment will be based on amount due and set by creditor
 Most all purpose cards are listed as revolving credit agreements
 Only similarity to chard cards: offer reward and rebate programs
 Used to pay for big items
 Cars, major appliances, real estate, etc.
 Loan is take out then repaid in fixed payments that include principal and
interest added
 Product purchased with loan becomes automatic collateral to assure
repayment
 Telephone and utility services are provided for a month in advance, then
you are billed
 Doctors, lawyers, hospitals, financial advisers: work on service credit
 Terms are set by individual businesses
 Companies are required by law to record transactions on your account
and send you a bill at the end of the billing cycle
 Pay the bill in full at the end of the cycle, you avoid finance charges
 Before selecting a credit card, be sure to review the following terms
which affects the overall cost of the credit you will be using