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Smart Financial Decisions Workbook Credit & Budget
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Introduction
Your Workbook for Making Smart Financial Decisions Welcome to SmartEdge By GMAC For many people, there is a mystery surrounding credit, creating a budget, automotive financing, getting a mortgage, banking and insurance. They have a lot of questions, and aren’t sure where to go for answers. That’s where this workbook comes in. It is designed to take the mystery out of these topics, as well as provide answers that can make you a better and more informed consumer. Please take the time to study and review this entire workbook. You will benefit the next time you’re faced with making a financial decision. This workbook has been designed to be used in a number of helpful ways: • As an introduction to those who have never applied for credit or created a budget • As a refresher for those who want to reacquaint themselves with the many aspects of these popular financial services topics • As a self-study guidebook • As a quick and easy-to-use resource whenever you have a question about financial services Throughout this workbook you will find: • Key Terms • Exercises that help explain specific concepts • Review Questions • Helpful Resources – numbers to call and websites to visit for more information This workbook may be used alone or with a moderator. We suggest you mark pages you may want to come back to later for reference. Just follow along and you will be on your way to making smart financial choices that can last a lifetime. If you discover just one way to get more for your money, this workbook will have been a success. One thing we can guarantee – by reading and using this workbook, you will be more knowledgeable and better prepared when seeking credit, shopping for a vehicle, buying a new home or getting insurance. Note: The examples used in this workbook are for illustration only and may not accurately reflect any available transactions.
Introduction – 1
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Credit & Budget
Credit Introduction This section is about the various aspects of your personal credit, and how credit impacts your life in so many ways. It is also about your budget, and how budgeting wisely can help you acquire goods, services, and the car or home of your dreams. This section includes:
What You Need to Know About Credit The credit part of this section covers the following basic information: • What is involved in applying for credit • Creditworthiness and the purpose of credit records • How creditworthiness affects you and your ability to get credit • How and why credit reporting agencies maintain credit reports • How to obtain your personal credit report • What a credit score is and how it is determined • How to avoid or correct credit problems • What consumer protection laws are related to credit
Credit Has More Than One Meaning The word credit can be used in two ways: 1. Credit allows you to buy now and pay later. You may be looking to buy something that you really need, but don’t have the cash to pay for the purchase at that time. 2. Credit is a person’s reputation for paying bills when they are due. This is also referred to as your willingness and ability to pay- or creditworthiness.
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The Importance of Good Credit It is important to establish a good credit history, primarily by making your payments on time. Your creditworthiness will not only affect your ability to borrow money or purchase goods and services on credit, but may also affect:
Your Employment • Some employers require a credit report • Poor credit could mean you are not offered a job (for example, if you cannot be bonded or obtain a security clearance)
Your Living Accommodations • Landlords regularly request credit information for applicants seeking apartments • Landlords do not want tenants who do not pay their bills
Your Finance Rate • Individuals with better credit histories can generally negotiate lower finance rates than those who are greater credit risks
Your Convenience • Renting a car, making hotel reservations and hundreds of other transactions are much easier if you have a credit card • Credit cards may be difficult to obtain if you have bad credit
Why You Need a Credit History If you have no credit history, creditors have a limited basis on which to make a decision about whether or not to give you credit – particularly if there’s a major purchase involved. • One suggestion: Establish credit by obtaining a gasoline or department store charge card and making payments on time
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The Consequences of Bad Credit Besides harming your credit history, you might face the following outcomes if you don’t pay your bills:
You May Be Charged a Late Fee • Anywhere between a few dollars to a percentage of the balance due
Your Credit Card May Be Frozen • So you can’t make any more purchases
You Could Be Denied Services • If you are late on utility bills or rent, your service could be discontinued or you could be evicted • You will have to pay any unpaid balances and expensive fees and deposits to reconnect your services
You Could Face Legal Action • Such as garnishing your wages, where your employer is forced to send a portion of your pay to the creditor before you get your check
You Could Lose Your Property • Creditors may seize, repossess, or foreclose on your property, such as your car or home
Did You Know?
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Falling behind on payments can cause serious financial problems for years.
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Key Terms That Apply to Credit Capacity:
Character:
Charge-Off:
Your ability to pay your debts.
Where credit is concerned, a person’s reputation for paying bills when due. This is also referred to as your willingness and ability to pay- or creditworthiness. When a creditor decides to write off the account balance as a “bad debt.”
Collateral:
An asset pledged to the creditor until the credit obligation is paid. Example: If you own your home (or another car), it may be used as collateral to secure a car loan.
Co-Signer:
A person (co-buyer/co-lessee) who assumes equal responsibility for a contract or lease agreement.
Creditor:
A person or organization that regularly extends credit subject to a finance charge and to whom the credit obligation is initially payable on the face of the contract.
Credit Report:
A report about you and your payment history, gathered by a credit reporting agency in an organized manner.
Credit Reporting Agency:
Credit Score:
Lien:
A firm that collects, sorts and sells information about an individual’s credit history.
A numerical score that sums up – at a point in time – what your past and current credit usage predicts about your future credit performance based on statistics. The better your history of credit, the higher your score. A legal claim on ownership stemming from a credit obligation.
Permissible Purpose:
The legally acceptable purpose(s) a creditor or organization has to obtain a person’s credit report. Example: When you apply for credit, you are giving your potential creditor the legal right to obtain your credit report.
Repossess:
In the event of non-payment of a credit obligation, a creditor’s legal right to take the asset you have pledged as collateral and sell it to pay off the credit obligation. Credit & Budget – 5
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Applying for Credit – the Starting Point in the Process Whether you want to finance or lease a vehicle, buy a home, or get insurance when you apply for credit, the credit application you fill out is the first step in the process.
How to Avoid Delays – Be sure to fill out all of the information on the Credit Application form completely and accurately.
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How Creditors Get Information About You When you fill out and sign a credit application, you are giving permission to the creditor to obtain a copy of your credit report.
What’s a Credit Report? A credit report is a document that: • Contains information about you and your payment history, collected and organized by a credit reporting agency • Is available to those who are considering granting you credit
How Credit Report Information Is Collected • Each time you are granted credit or make a payment on an account, that information is gathered by the nation’s three major credit reporting agencies: – Equifax
– Experian
– TransUnion
• Creditors provide data to the credit reporting agencies: – Example: The type of account you have – such as revolving or installment credit – and how often you pay • These credit reporting agencies: – Collect and sort the information obtained from all over the country – Package and sell the information in the form of a credit report •
Your current and potential creditors can then buy the credit report and evaluate whether or not to approve or deny you credit
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Did You Know?
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Credit reporting agencies simply report the facts on your credit background objectively – they do not approve or deny your request for credit.
What Your Credit Report Says Your credit report provides a lot of useful information, including answers to such questions as: • Do you pay your bills on time? • How many credit obligations (such as credit cards and loans) do you have? • What is the total amount of credit that has been extended to you? • How much do you actually owe on all of your accounts?
Did You Know?
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What’s contained in your credit report can impact both the decision to grant you credit and the rate that you will pay.
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What’s in Your Credit Report? Generally, there are five types of information that your credit report reflects:
1. Personal Identification Information • Your name, spouse’s name, Social Security number, current and previous addresses, birth date, and current and previous employers • This information comes from your past credit applications, so it is important to completely and honestly fill out forms every time you apply for credit
2. Public Records Information • Includes bankruptcies, tax liens and monetary judgments, and – in some cases – overdue child support
3. Adverse/Collection Account Information • Information that reflects non-payment of a debt, supplied by either the original creditor or a collection agency
4. Credit Account Information • Each of your accounts with banks, stores, credit card issuers and/or other sources • Information includes date opened, amount, balance, monthly payment and payment pattern going back several years • Some information is kept for as many as ten years
5. Inquiry Information • Who requested and obtained copies of your credit report, usually within the past two years
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What’s NOT in Your Credit Report? Did You Know?
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Your credit report DOES NOT contain: • Certain personal information such as your race, religious preference, medical history, personal lifestyle, personal habits, social life, friends or relatives, political preference or criminal record • Information about your checking or savings account, or major purchases paid with cash or check
Credit Report Exercise Test your Credit Report IQ. Answer “yes” or “no” regarding what is – or is not – in your credit report: 1.
Late payment on your furniture loan Yes_____
No_____
2. Employment information Yes_____ 3.
No_____
On-time payments made on your department store credit card Yes_____
No_____
4. Your birth date Yes_____
No_____
5. Your race Yes_____
No_____
(ANSWERS DISPLAYED UPSIDE DOWN) 1. Yes 2. Yes 3. Yes 4. Yes 5. No Credit & Budget – 9
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Get a Copy of Your Credit Report Every 12 Months – Free! It’s a good idea to review your credit report on a regular basis. Checking that your credit report doesn’t include any credit cards or loans that you didn’t apply for is your best defense against identity theft. Also, checking your report helps to make sure that your credit score is being calculated on the basis of accurate information. You can request a free credit report once every 12 months from each of the nationwide consumer credit reporting agencies: Equifax, Experian and TransUnion. For information on how to request your report, go to www.annualcreditreport.com or call toll-free (877) 322-8228.
Get a Copy of Your Credit Report Whenever You Want – For a Fee If you want to receive a credit report more frequently than the free one you can get once a year, you can – for a small fee – obtain a copy of your credit report from any of the three major credit reporting agencies listed below. Call them toll-free or visit their websites for more information. Equifax (800) 685-1111 or equifax.com P.O. Box 105496 Atlanta, GA 30348-5496 Experian (800) 311-4769 or experian.com P.O. Box 9600 Allen, TX 75013 TransUnion LLC (800) 888-4213 or transunion.com Consumer Disclosure Center P.O. Box 1000 Chester, PA 19022
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Mistakes Happen – But You Can Correct Them If you find mistakes on your credit report, take action immediately.
What to Do if You Find Credit Report Errors – Contact the credit reporting agency immediately with the following information: • Your name and address • Identify the item(s) that is(are) incorrect
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• Provide documents to support your position • Request that the error be corrected
The credit reporting agency must look into your request within a reasonable period of time (usually 30 days) and delete any information they can’t verify. • Your rights, including what steps you can take to correct your credit, can be found by reviewing the Fair Credit Reporting Act at: – www.ftc.gov/os/statutes/fcra.htm – Toll-free (877) FTC-HELP (382-4357) • You can also write to: Federal Trade Commission CRC-240 Washington, DC 20580
Add a Consumer Statement If you dispute information on your credit report and the investigation does not resolve the dispute, you may: • Send in an explanation of any errors or adverse items which will be posted as a consumer statement on your credit report – Write your statement in 100 words or less and send it to the credit reporting agency in question
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How Do Creditors Evaluate Your Credit Report? When your creditor receives your credit report, it usually comes with a score. Additionally, many creditors have a method to take the information from your credit report and your credit application and translate that into their own numerical score. Credit scoring is the scientific process where a mathematical model determines a consumer’s credit risk by comparing information about one consumer to the credit performance of many others with similar credit profiles.
What Is a Good Score to Get? Scores range from 300 to 850, but the great majority of scores are in the 600s and 700s. The higher the score, the less risk there is for the creditor, so a score of 750 may qualify you for a better rate than a score of 625. The math is simple: The higher the score, the better.
How a Score Breaks Down Your credit score from a credit bureau (also known as your FICO score) is based on five factors. Here is how much each factor contributes to the overall score:
For more information on credit scoring visit www.myfico.com
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How Do Creditors Evaluate Your Credit Report?
Four Things That Make Creditors Smile: 1. You pay your bills on time.
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2. You have a small amount of total debt. 3. You don’t have a lot of open credit. 4. You are stable and responsible.
You Pay Your Bills on Time • You are considered a good credit risk if you have a history of paying your bills on time
You Have a Small Amount of Total Debt • Make sure your total debt is not too large – If a large portion of your income each month is already committed to paying off other credit, creditors will need to think about extending you new credit
You Don’t Have a Lot of Open Credit • Excess open credit can result from having too many credit cards • You may think having a lot of credit cards with high limits is a sign that you have good credit, but creditors may look on your available credit as being a potential debt – In other words, creditors may believe too much open credit may lead you to overextend yourself in the future
You Are Stable and Responsible • Creditors look for signs of stability and responsibility – Numerous changes in address and/or employment may hurt your rating
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How Do Creditors Evaluate Your Credit Report? Three Things You DON’T Want to Do: 1. Don’t be late paying your bills.
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2. Don’t apply for every credit offer that comes your way (creditors may believe you’re in trouble and are looking for a quick way out!). 3. Think very carefully before ever filing for bankruptcy.
Don’t Be Late • Having a history of late payments will hurt your credit rating – The later the payment (whether 30, 60 or 90 days), the more negative your rating
Don’t Apply for Every Credit Offer • Whenever anyone checks your credit report because of your application, an inquiry is added to the report • Too many inquiries could count against you – Creditors may believe you are applying for lots of credit because of financial difficulties, or that you are potentially overextending yourself by taking on more credit obligations than you can pay
Don’t File for Bankruptcy • Bankruptcies and charge-offs – where a creditor writes off the amount you owe because of your inability to pay – are viewed negatively • If you are in financial difficulty, try first talking to your creditors and arranging a schedule for paying off your debt over time – For help, contact any of a number of nonprofit credit counseling services – check online or in your phone directory for a counseling service near you
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Signs of Credit Problems Exercise To help you see if your creditworthiness is in danger, check off all of the following that apply to you: ❑ I barely make ends meet with my current income ❑ I rely on overtime to make ends meet ❑ I put off medical and dental appointments because I can’t afford them ❑ I worry that my utilities will be shut off, or that my car will be repossessed ❑ I find it difficult to save ❑ I use my savings account to pay my bills ❑ I have had to borrow money for expenses like taxes and insurance ❑ I have been denied credit ❑ I took out a new loan to pay off an old loan ❑ I have some skipped or late payments every month ❑ I frequently overdraw my checking account ❑ I get past due notices and regularly pay late fees ❑ All of my credit cards are at or near their credit limit ❑ I can only afford to make the minimum payment on my credit cards each month
You Know You’re Headed for Trouble if – You’ve checked three or more of the statements above.
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How to Get on the Right Track First, second and third – pay your bills on time. Living within your means doesn’t just feel good, it has great financial implications. If you do find yourself slipping into serious financial difficulty, take action immediately to fix the problem:
Contact Your Creditors • Explain your situation • Ask for a reduced or delayed payment plan • Let your creditors know you are willing to pay the obligations, but don’t make promises you can’t keep • Most creditors will work with you if you give them a realistic payment plan and follow through as promised
Get Outside Help • Find a professional nonprofit credit counseling service to help you: – Organize your finances – Set up a realistic budget – Understand the wise use of credit • The National Foundation for Credit Counseling – www.nfcc.org or (800) 388-2227 can help – They will give you the address and phone number of the Consumer Credit Counseling Service closest to you – CCCS is a nonprofit organization that offers confidential counseling and helps create a debt management plan for a small fee
Beware of Fee-Based Credit Repair Clinics • The Federal Trade Commission (FTC) cautions consumers about these companies • Remember: Credit repair clinics cannot do anything for you that you cannot do yourself for FREE Four Ways to Improve Your Creditworthiness: 1. Pay off your past due accounts. 2. Bring past due accounts up to date and keep them that way. 3. Close unused accounts.
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4. Write a brief explanation (such as unemployment) if you’ve had poor performance so it can be included on future credit reports. Credit & Budget – 16
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Your Overall Credit Picture Creditors look for ways to help them predict your future credit behavior. They want to: • Understand their financial risk if they decide to give you credit • Make good business decisions on each application for credit
Your Credit Information + Your Creditor’s Judgment = Your Credit Approval or Denial Each creditor decides how much risk it can afford, and bases its final credit decision on: • Your overall credit picture • The amount of credit you are requesting • Details of the transaction – Such as the cost of the vehicle and how much money you are putting down
Weak Credit on Your Own? A Co-Signer May Help A creditor may allow you to have a co-signer (such as a spouse or parent) sign the finance contract with you in order to make up any credit weakness. • The creditor will evaluate your co-signer’s and your creditworthiness both individually and combined • This may be necessary for you to obtain the credit you are applying for • Note: A co-signer needs to know that he/she assumes equal responsibility for the contract, and the account history can be reflected on the co-signer’s credit history as well
If You Are Denied Credit Under the Equal Credit Opportunity Act: • You must be notified within 30 days after your application has been completed whether your request for credit has been approved or not • If credit is denied, you must be notified in writing – Specific reasons must be given or you must be told of your right to ask for an explanation
What to Do if You Are Denied Credit – First, be sure to find out why. That often means asking for an explanation when you receive notification. It may be something simple (like not being employed or living long enough in the community), or it may be that you have too many outstanding debts.
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Consumer Protection Laws The following is a summary of the federal consumer protection laws relating to credit. Your state may also have similar laws.
Equal Credit Opportunity Act
• Prohibits discrimination related to credit because of your sex, race, color, marital status, religion, national origin or age • Also prohibits discrimination related to credit if you are receiving public assistance or that you have exercised your rights under the Federal Consumer Credit Protection Act
Credit Practices Rule
• Requires creditors to provide a written notice to potential co-signers about their liability if the other person fails to pay • Prohibits late charges in some situations • Prohibits creditors from using certain contract provisions that the government found to be unfair to consumers
Fair Debt Collection Practices Act
• Prohibits debt collectors from using unfair or tricky practices to collect overdue bills that your creditor has forwarded for collection – This does not apply to banks or other businesses collecting their own accounts, although some states have similar laws that do
Fair Credit Reporting Act
• Gives you the right to know what information is being distributed about you by credit reporting agencies
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Consumer Protection Laws FACT Act
• Update to Fair Credit Reporting Act • Addresses problems of identity theft, consumer privacy and inaccuracies of the consumer credit reporting system • Provides consumers the right to one free credit report each year • Allows consumer to call one number to notify credit reporting agencies and credit card companies of identity theft
Truth in Lending Act
• Requires creditors to give you written disclosures of important terms of the credit agreement, such as: – APR – Total finance charge – Monthly payment amount – Payment due dates – Total amount being financed – Length of the credit agreement – Any charges for late payment
Fair Credit Billing Act
• Establishes the process for resolving billing errors on your credit card accounts
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Consumer Protection Laws Consumer Leasing Act (CLA)
• Requires the leasing company (for example, a dealership), to disclose certain information before a lease is signed, including: – The total amount of the initial payment – The number and amounts of monthly payments – All fees charged – The charges for default or late payments • For vehicle leases, the lessor must also disclose: – The annual mileage allowance – Charges for excess mileage – Whether the lease can be ended early – Whether the leased vehicle can be purchased at the end of the lease – The price to buy at the end of the lease – Any extra payments that may be required at the end of the lease
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Review Regarding Credit Answer the following questions as a review on Credit: 1.
Why is it important to maintain a good credit history? a. Because your family will inherit it, and it’s important to plan for their future b. Because anyone can access your credit history at any time to learn about you c. Because a good credit history can generally help you negotiate for a lower finance rate d. Consumer protection laws state it is your responsibility to maintain good credit
2. What might happen if you fail to make several payments on purchases that you made a year ago? a. The item(s) can be taken away from you, if the item(s) secured the credit obligation you took on when you bought the items b. Negative information may be added to your credit report c. You could be denied credit in the future d. All of the above 3.
How can you find what your credit history looks like? a. Contact a credit reporting agency b. Ask a private investigator to find out all they can about you c. Look yourself up on the Internet d. Check your family’s credit history
4. Which of the following is not something a creditor will look at before granting you credit? a. If you pay your bills on time b. Where you live and your living arrangements c. How many credit obligations you have d. How much you owe on all your accounts
(ANSWERS DISPLAYED UPSIDE DOWN) 1. C Credit & Budget – 21
2. D
3. A
4. B
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Review Regarding Credit True or False: 5. If you dispute information on your credit report, you can add a consumer statement explaining the circumstances. a. True b. False 6. If you can’t make your car payment, it’s best to wait until the next month to catch up on the payments. a. True b. False 7.
If you are denied credit, the creditor is not legally required to explain why. a. True b. False
8. When creditors evaluate your income, they can’t legally refuse to consider income from public assistance in the same manner as other income. a. True b. False 9. Your credit report is available to anyone, regardless of the reason. a. True b. False 10. A creditor can deny you credit based on your marital status. a. True b. False
(ANSWERS DISPLAYED UPSIDE DOWN) 5. A 6. B 7. B 8. A 9. B 10. B Credit & Budget – 22
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Budget – The Key to Living Within Your Means The best way to ensure you build and maintain good credit is to live within your means. And the easiest way to do that is to budget wisely.
Know Your Monthly Budget – Then you will know how much you can afford to spend on any big ticket item like a car or home.
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What You Need to Know About Budgeting The Budget part of this section covers basic information about: • How to create a budget • What the parts of a budget are • How car expenses affect your monthly budget • How to find a vehicle that fits your budget
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Key Terms That Apply to Budget Budget:
Tool commonly used to measure expenses against income. A written plan that helps people manage their money.
Down Payment:
Initial payment, usually a large amount, used to reduce the amount financed.
Types of Expenses:
Fixed Expenses: Expenses due at a particular time or on a regular schedule. These expense amounts remain the same or change according to a known schedule (for example, rent or car payment). Variable Expenses: Expenses that take place on a regular basis and are consistent and predictable, but the amounts change (for example, utilities and credit cards). Flexible Expenses: Expenses that occur by choice and are subject to change (for example, hobbies and entertainment).
Types of Income:
Gross Income: Total amount of money earned before any taxes and payroll deductions are subtracted. Net Income: Gross income, minus taxes and payroll deductions; your take-home pay. • Bi-Weekly Income: Payment every two weeks (for example, every other Friday). • Semi-Monthly Income: Payment twice a month, such as on the 15th and the 30th.
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A Budget Helps Keep You on Track A budget allows you to analyze: • How much money is coming in • How much money is going out • How much is left over for major purchases, like a new or used vehicle Generally, we consider net income when working on a budget. • Net income, or take-home pay, is the amount of money you actually receive in your paycheck after taxes and any other deductions (such as Social Security, health care and Medicare) are subtracted from your paycheck • Other income that may factor into your budget includes interest from a savings account, cash gifts, tips, bonuses and child support
How to Calculate Your Net Monthly Income Simply apply the following formula, depending on how often you are paid: • If weekly, multiply your take-home pay by 52 and divide by 12 • If bi-weekly, multiply your take-home pay by 26 and divide by 12 • If semi-monthly, multiply your take-home pay by 2
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How to Create a Budget Figuring out how much money comes in is pretty easy, but figuring out how much you spend might take a little effort.
First, Collect All Your Bills This includes your credit card statements, your checkbook register, and receipts for gas, groceries and anything else you buy with cash, check or a debit card. • Don’t forget about items that are billed less regularly, such as taxes or insurance • If you don’t keep receipts for some of the items listed, you may have to wait a month or two while you collect the bills required – Use a notebook to make sure you record every receipt – Or use a money management program on a computer
Use This Budget Checklist ❑ Mortgage or rent statement ❑ Checkbook register ❑ Car payment book or statement ❑ Receipts for gas, groceries, child care, etc. ❑ Utility bills (electricity, heat, water) ❑ Insurance statements ❑ Credit card bills ❑ Savings passbook or statement
The Three Types of Expenses Expenses can be divided into three categories: • Fixed expenses
Did You Know?
• Variable expenses
• Flexible expenses
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Not all budget items are equal: • Fixed budget items are the same each month (such as your mortgage) • Variable items change each month (like your phone bill) • Flexible items are often controlled by your willpower (such as whether you go to a movie on the weekend, and how much you spend there)
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How to Create a Budget
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Saving Adds Up – Why save? For emergencies (most financial planners recommend you have at least six months’ worth of living expenses set aside). Saving will also help you reach any special goals you may have, but maybe never had the money to achieve – such as saving for the down payment for a new car or home.
What Paying Yourself First Means Almost every financial advisor recommends paying yourself first when creating a budget. What paying yourself first means is to: • Decide on an amount – say 5% or 10% – of your take-home pay • Deposit the money into a savings account – If your employer has an automatic savings deduction program, all the better – it’s harder to spend what you can’t see By paying yourself first, you get an orderly way to make your money grow – and that can really pay off in the long run!
Did You Know?
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When you know what expenses are needed, versus what expenses are for wants, you’ll be in great shape to make budget adjustments – as necessary – to help save for the car or home of your dreams.
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Finding Room in Your Budget It’s fun to window shop for the car or house of your dreams by driving past the dealership or searching new home listings on the Internet. Before you get too excited about any car or house in particular, however, you should determine what you can afford. The best way to do that is to figure out how a car or house payment might impact your budget.
Size of Your Car Payment – Generally, your car payment should be no more than 15% to 20% of your take-home pay, after first subtracting monthly payments such as credit cards and home equity loans.
TIP Research What You’re Most Interested In Along with reviewing your finances, you’ll also want to research the type of car or truck, house or insurance you are interested in. • Check out various buying guides • Visit sites on the Internet • Read your local newspaper ads
Always Read the Details – When looking at ads, be sure to read the details, so you’re clear on what’s being advertised, including all the finance or lease terms, down payment required and any additional charges.
TIP Getting a car or house is certainly an exciting time – and being prepared can help you get what you want, live within your means and avoid serious credit problems that can occur if you overspend.
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Credit & Budget
Review Regarding Budget Answer the following questions as a review on Budget. 1.
Net income is also known as: a. Taxable income b. Alimony c. What’s left after you pay your bills d. Take-home pay
2. Which of the following applies to variable expenses? a. Take place on a regular basis b. Consistent and predictable c. The amounts change d. All of the above 3.
About how much of your monthly take-home pay should your car payment not exceed, after subtracting certain monthly expenses, like credit cards? a. 5% to 10% b. 10% to 15% c. 15% to 20% d. 20% to 25%
4. In addition to vehicle payment, what other vehicle expenses should be considered in your monthly budget? a. Insurance b. Maintenance c. Gasoline d. All of the above
(ANSWERS DISPLAYED UPSIDE DOWN) 1. D 2. D 3. C 4. D Credit & Budget – 29
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Credit & Budget Sample Budget Worksheet
If your income is not enough to cover your expenses, you should probably change your spending plan by deciding which expenses can be decreased or what you can do without. Š 2009 GMAC. All Rights Reserved.
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Credit & Budget
Consumer Resources For Credit Information The Federal Trade Commission enforces a number of credit laws and provides consumers with free information regarding credit regulations and consumer protection issues. You can file a complaint with the FTC by contacting the Consumer Response Center toll-free at (877) 382-4357. For more information, visit their website at www.ftc.gov. For more information on federal credit regulations and consumer rights, contact the Federal Reserve System at (202) 452-3693, or visit their website at www.federalreserve.gov. Some state laws may provide you with additional rights. For information on these laws, contact your state’s consumer protection agency or the attorney general’s office.
For More Information on Credit Reports – Websites myfico.com/CreditEducation ftc.gov/bcp/menus/consumer/credit/reports.shtm
For Budget Information The American Financial Services Association Education Foundation offers publications that you may find useful. For example: • Consumer Budget Planner • The Consumer’s Almanac Go to www.afsaef.org or call toll-free (888) 400-2233 to order these publications. A small fee may be required.
Helpful Budget Websites • AFSA Education Foundation: www.afsaef.org • GMAC Financial Services: www.SmartEdgeByGMAC.com or www.gmacfs.com • The Jump$tart Coalition for Personal Financial Literacy: www.jumpstart.org
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SmartEdgeByGMAC.com
Š 2010 GMAC. All Rights Reserved. GMAC is a registered trademark. GMAC Financial Services is a service mark. SmartEdge is a registered service mark of GMAC.
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