Cost of Credit

Managing Your Credit & Debt

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Learning Goals/Objectives: 

What does it mean to use credit?

What are the advantages and disadvantages of using credit?

What are the consequences of poor credit decisions?

Where can you get help with credit problems?

Overview: 

This lesson introduces the use of credit, forms of credit, such as credit cards, and the importance of making good decisions about using credit.  Ways to respond to credit problems are introduced.

Grouping of Students: 

Large group discussion

Methods: 

Discussion

Complete handout

Activities: 

Activity 

Students work through the real cost of purchasing a DVD player with a credit card to determine the total paid with interest over a period of time.

So you want to buy that great new DVD Player and Surround Sound System with your new credit card?  It seems so easy?  Let’s see if it’s worth it.  Unfortunately, you do not have enough money to pay off the entire balance.  You decide to make payments of $50.00 per month.  Determine how much it will finally cost for the new DVD Surround Sound System.  It sounds great!

After you make a payment of $50.00, what will be your balance next month?  The next month, you again make a payment of $50.  Now what do you owe?  The next month, you again make a payment of $50.  Now what do you owe?  About how much do you think your total of all interest payments will be after you finally pay off the total balance with $50 payments each month? 

How long do you think it will take you to pay off the total balance (original purchase price and accumulated interest) with payments of just $50 per month? 

Procedures

1. Review the reasons for using forms of credit, especially credit cards.

2. Use the chart in “Choosing the Right Card” to illustrate the ways credit card offers differ and the advantages of each.  If possible, collect credit card application forms or make copies for students.  Review the application process and the required information.

3. Discuss the responsibilities and rights of credit users.  Contact the local office of the Consumer Credit Counseling Service, a non-profit agency, to talk to the class about credit use, problems and solutions.

 

Materials: 

Handout 1

Assessment: 

Complete Handout 1.

Download: 
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Lesson 42 Handout 1.doc

Choosing a Credit Card

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Learning Goals/Objectives: 

There are thousands of choices when it comes to credit cards.  Each is designed for a particular type of credit user.  Banks and other institutions compete through different interest rates, different kinds of rewards, various membership fees and member benefits, and relationships with groups.

 This lesson uses a web resource created by CreditCards.Com to compare the costs and benefits of credit cards offered by a variety of financial institutions. 

Link:  www.creditcards.com

Overview: 

Background Information

 Below are listed the various types of credit cards offered by many financial institutions.  The CreditCard.Com web page lists several options of reach type.  The general descriptions of the types of cards are listed at the top of each page.

 •           Low Interest Credit Cards

            Credit cards with a 0% introductory APR or low fixed rate offers.

•           Balance Transfer Cards

            Transfer a high interest balance onto a low APR credit card.

•           Rewards Credit Cards

            Credit cards that "reward" you for your purchases with perks or products.

•           Cash Back Credit Cards

            Credit cards that allow you to earn cash back on your purchases

•           Airline Credit Cards

            Earn frequent flyer miles with an airline credit card.

•           Instant Approval Cards

            Get approved instantly on select credit cards from merchants or banks.

•           Prepaid & Debit Cards

            Cashless spending with debit cards, prepaid debit or credit cards.

•           Credit Cards for Bad Credit

            Cards for people with poor credit or less than perfect credit, with restrictions.

•           Student Credit Cards

            Credit cards for high school and college students – often co-signed by a parent.

•           Business Credit Cards

            Cards for corporate use or for small-business owners.

  • 0% APR Credit Cards
                Credit cards with 0% APR for 6 - 12 months on purchases or balance transfers.

 In addition to the types of credit cards listed by CreditCard.Com, some cards are offered as “Affinity Credit Cards.”  These cards pay a percentage of the interest to non-profit organizations, schools, worthy causes, etc.  For instance, your card may offer some percentage of the total interest paid to an environmental organization you support.

 

Activities: 

1.         Ask students to suggest the criteria they might use to compare credit card offers.      The list may (should) include the following: 

  • Interest rate
  • Grace period
  • Annual fee
  • Over-limit and other fees
  • Rewards (cash back, airline miles, etc.)
  • Affinity to an organization

 2.         Ask students to suggest which people might be interested in these criteria. 

  • Interest rate – those who carry a balance each month.
  • Grace period – those who pay the total balance each month.
  • Annual fee – Those who use a card often - or use one very little.
  • Over-limit and other fees – those who do not like or want to avid fees.
  • Rewards (cash back, airline miles, etc.) – single card users.
  • Affinity to an organization – graduates or those who support causes.

 3.         Assign small groups of students to each type of credit card included on the     CreditCard.Com web site.   Print out the lists of card offers for each category or          provide a computer with Internet access to each group. www.creditcards.com 

CreditCard.Com links to the types of credit cards. 

4.         CreditCard.Com also has links to compare credit card offers based on the credit applicant’s credit rating or credit history.  See the list in the left column on the CreditCard.Com home web page.  The categories are: 

•           Excellent Credit

•           Good Credit

•           Fair Credit

•           Bad Credit

•           Limited or No Credit History

•           Not Sure?

Download: 
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Lesson 20 Choosing a Credit Card.doc

Comparing & Contrasting Credit Card Offers

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Learning Goals/Objectives: 
  • The students will demonstrate an understanding of what credit cards really cost by comparing and contrasting two different credit card offers.
Grouping of Students: 
  • Groups of 2-3
Methods: 
  • Drawing a cartoon (Tactile Learners)
  • Persuasive Essay (Reflective)
  • Story Telling (Global Understanding)
Activities: 

“Hook” – You are an average American
with $8,000 in credit card debt. You just received in the mail a letter from
your credit card company that states that your interest rates will be 39% on
your credit card debt in fifteen days because the market has changed - - - can
they do that? (Yes)

a. Charting – 30
minutes

  • Distribute copies of
    two separate credit card offers and Credit Card Comparison Sheet
  • Students are to
    complete the credit card comparison sheet
  • The instructor needs
    to explain how to make a graph for each. First, how do you determine prime
    based on the information in front of you on the credit card?

b. Drawing or Writing
– Remainder of bell and homework

  • How would you feel if
    your life was ruined because of your choices with credit cards? How would you
    feel if your life was better because of your choices with credit cards? Today,
    you are going to tell me either through an essay, or a cartoon.

Choice - Drawing a
Cartoon/Persuasive Essay – Duration of the bell

  • Students are to
    complete the above consistent with the rubric

Choice - ‘Story
Telling’ – Homework

  • Students find a
    family member, friend, or teacher who had a terrible experience with credit
    cards and document the story (you do not have to use names). If they cannot
    find someone, they are responsible for developing a fictional story about how
    credit card debt tangled a web of misery for that person.
Materials: 
  • Rubric
  • Credit Card Applications
  • Credit Card Comparison Sheets
Assessment: 
  • Graphs (25 classroom assignment points);
  • Essays or Drawings – (30 homework points)
  • Informal observation
Download: 
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Credit Card Comparison Worksheet.pdf

Cost of Credit

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Learning Goals/Objectives: 
  • The students will investigate and be assessed as to how to determine the amount of money the average American consumers pays in finance charges.
  • The student will demonstrate they understand how to modify their budget based on various credit card debt and college debt scenarios by completing the working budget sheet.
Grouping of Students: 
  • Groups based on the group discussion questions initially
  • Individual
Methods: 
  • Classroom Discussion/Dialogue (Auditory learners)
  • Computer Assisted Learning (Visual learners)
  • Direct Instruction (Auditory learners)
Activities: 

“Hook” – Today we are going to use real numbers - - the average American’s credit card debt - - to learn about how much money can be saved by using credit wisely.

a. Computer Assisted Learning – 25 minutes~Handout and complete ‘How much does debt cost?’ as a class or individually~Go to www.pbs.org/wgbh/pages/frontline/teach/credit/hand2.htmlhttp://aol1.bank...

b. Direct Instruction & Written Response with Working Budget Template – 20 minutes~”Let’s look at the opportunity cost of credit card debt” Using the ‘working budget’, you will make adjustments on the budget based on paying off your credit card debt (at 19%) in one year, two years, and three years. Re-allocate your budget. You can only re-allocate food, entertainment, disability insurance, ROTH IRA and 401K contributions, emergency savings, clothing, personal care, basic cable, and philanthropy. All other line items are necessary to live your life or you are legally bound to paying for the line item (taxes & insurance). 
~You will need to give some things up, what will they be?
~At the conclusion, discuss and insert college debt. Stress monthly college debt should never exceed 10% of your gross monthly pay. For example, if you earn $3,000 a month gross, your monthly college debt payment should not exceed $300.

c. Self-Sustained Reading - Extra Credit/Extra Time ~Read the summary of the consumer protection legislation passed in 2009 entitled ‘Upcoming Credit Card Protections’ and describe why you believe or you do not believe the new legislation would be helpful for consumers.

Materials: 

Computer lab or projector with internet connection; Student handout ‘How much does debt cost?’; ‘Opportunity Cost Worksheet’; Website address: http://aol1.bankrate.com/aol/calc/MinPayment.asp?nav=cc&page=calc_home; www.econedlink.org/lessons/index.cfm?lesson=MM188&page=teacher; 

Assessment: 

‘How Much Does Debt Cost’ Handout (27 points – 1 point each); ‘Budget Worksheet’ Handout (15 points); ‘Credit Card Legislation Summary’

Download: 
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Cost of Credit Student Handout.pdf
Download: 
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CreditCardLegislation.pdf
Download: 
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WorkingBudget.xls
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