Credit and Debt Management - Personal Financial Planning - Lecture Slides, Slides for Finance. Ankit Institute of Technology and Science
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saritae13 February 2013

Credit and Debt Management - Personal Financial Planning - Lecture Slides, Slides for Finance. Ankit Institute of Technology and Science

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This is the Lecture Slides of Personal Financial Planning Dealing With Cra and the Tax Collectors, Tax Returns, Payment of Tax, Electronic Filing, Source Withholdings, Electronic Tax Payments etc. Key important points ar...
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Chapter 3 - Managing Your Taxes

Credit and Debt Management

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Agenda • Review of learning goals • Key chapter terms and definitions • Basic concepts of credit • Improper use of credit • Establishing credit • Types of open account credit • Bank credit cards • Rebate (co-branded) credit cards • Other credit cards and charge accounts • Debit cards • Revolving credit lines • Opening an account • Summary • Internet links and on-line resources

Agenda

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Chapter 6 - Learning Goals

1. Describe the reasons for using consumer credit, and identify its benefits and problems.

2. Develop a plan to establish a strong credit history. 3. Distinguish among the different forms of open account credit. 4. Understand how to choose the right credit cards and recognize

their advantages and disadvantages. 5. Understand how to avoid credit problems, how to protect

yourself against credit card fraud, and understand the personal bankruptcy process.

Learning Goals

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Key Chapter Terms • Debt safety ratio • Open account credit • Credit limit • Credit statement • Bank credit card • Line of credit • Cash advance • Balance transfer • Rebate (co-branded) credit card • Grace period • Retail charge card • Prestige cards • Affinity cards • Secured (collateralized credit cards)

• Student credit card • Debit card • Prepaid card • Revolving line of credit • Overdraft protection line • Unsecured personal credit line • Home equity credit line • Credit investigation • Credit bureau • Annual percentage rate (APR) • Average daily balance method • Daily balance method • Consumer proposal • Straight bankruptcy • Personal bankruptcy • Credit counsellor

Terms

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Definitions Debt Safety Ratio

• The proportion of total monthly consumer credit obligations to monthly take-home pay.

• Low 10% • Manageable 15% • Maximum 20%

pay home-keMonthly ta paymentscredit consumer monthly Totalratiosafety Debt =

Terms

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Definitions Open account credit

• A form of credit extended to a consumer in advance of any type of transaction; type of credit that accompanies charge accounts and credit cards.

Terms

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Definitions Credit Limit

• A specified amount beyond which a customer may not borrow or purchase on credit.

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Definitions Credit Statement

• A monthly statement that summarizes the transactions, interest charges, fees, and payments in a consumer credit account.

Terms

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Definitions Bank Credit Card

• A credit card issued by a bank or other financial institution that allows the holder to charge purchases at any establishment that accepts it; can also be used to obtain cash advances.

Terms

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Definitions Line of Credit

• The maximum amount of credit a customer is allowed to have outstanding at any point in time.

Terms

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Definitions Cash Advance

• A loan that can be obtained by a bank credit cardholder at any participating bank or financial institution; it begins to accrue interest immediately and requires no formal application

Terms

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Definitions Balance Transfer

• A program that enables cardholders to readily transfer credit balances from one card to another.

Terms

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Definitions Rebate (co-branded) credit card

• A bank credit card that combines features of a traditional bank credit card with an additional incentive, such as rebates and airline mileage.

Terms

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Definitions Grace Period

– A short period of time, usually 17 to 26 days, during which you can pay your credit card bill in full and not incur any interest charges.

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Definitions Retail Charge Card

– A type of credit card issued by retailers and oil companies that allows customers to charge goods and services up to a pre- established amount.

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Definitions 30-day (regular) charge account

– A charge account that requires customers to pay the full amount billed within 10 to 20 days after the billing date.

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Definitions Travel and Entertainment (T&E) Card

– A credit card, such as American Express or Diner’s Club, accepted by travel and entertainment-related establishments, as well as a growing number of other businesses and stores.

Terms

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Definitions Prestige Card

– A type of bank or T&E card that offers higher credit limits, has stricter requirements for qualification, and generally offers more features than its “regular” counterpart.

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Definitions Affinity Card

– A standard bank credit card issued in conjunction with some charitable, political, or other sponsoring non-profit organization.

Terms

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Definitions Secured (collateralized) credit cards

– A type of credit card that’s secured with some form of collateral, such as a bank GIC.

Terms

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The Basic Concepts of Credit

Why Borrow?

• Avoid paying cash for large purchases (like a car)

• Meet financial emergencies

• Convenience

• Investment purposes

Credit

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Improper Uses of Credit

• Meet basic living expenses

• Make impulse purchases

• Purchase non-durable goods (like restaurant meals)

Credit

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Rule of Thumb!

THE PRODUCT PURCHASED SHOULD OUTLIVE THE CREDIT PAYMENTS

Don’t let credit squash you!

Credit

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Establishing Credit

• Open checking and savings accounts.

• Get one card and make small purchases.

• Build a good credit history by: – Not getting overextended. – Fulfilling all terms of credit obligations. – Consistently paying on time. – Immediately notifying creditors if unable to pay. – Being truthful when applying.

Credit

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How much credit can you stand

Total monthly consumer credit payments Monthly take-home pay

Monthly consumer credit payments (excluding mortgage) should not exceed 20% of your

monthly net income.

DEBT SAFETY RATIO =

Credit

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