Owing Worksheet

Owing
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If you borrow money, you owe someone or a certain company a debt. Learn all about credit
now, before you start using it. If you understand the advantages and disadvantages of credit
cards, they offer a convenience that can be worth the price. But remember: credit does come at
a price!
1. In 5 sentences, explain the advantages and disadvantages of using a credit card:
There are goods and bad when it comes to credit cards. If not used responsibly you can
find yourself in a lot of trouble. The advantages to a credit card are instant access to money
even if you dont have the funds in your account. The disadvantage is when the time comes to
pay you getting your bill and realize you spent well over your available funds. This is how credit
card Companys makes their money
2. Define the following words:
a. Credit Limit: the amount you can spend on the card.
b. Minimum Monthly Payment: smallest bill to pay and still have good credit.
c. Grace Period: the time you have to pay the bill.
d. Late fees: the fee the charge when late.
e. Interest Rates: the fee the charge for letting you borrows.
f. Secured Credit Cards: backed up by another account so bill will always be paid.
g. Credit Reports: the statement you receive with your scoring/owing.
Adapted from: www.themint.org
Activity
3. Complete the Credit Card IQ Quiz under Play. There are seven questions. Enter the
correct answers in the following blanks:
1.______true______________________
2.______true______________________
3.______true______________________
4.______false_______________________
5.______false_______________________
6.______true_______________________
7.______true_______________________
Adapted from: www.themint.org
Credit vs. Debit
Debit cards and credit cards are both useful noncash spending tools for responsible young
adults. The key word to remember is responsible. Too many people get into debt because they
dont use them in the way they were designed to be used. Credit cards are not an endless pool
of money, and debit cards could cause trouble if you dont monitor your bank statements and
how much you have available to spend.
Read the following article, and then answer the questions found in the lesson guide:
Credit and Debit Cards: What You Need to Know
By JENNIFER BARRETT

Published: January 6, 2009

A generation ago, it wasnt all that unusual to be out for dinner with friends or at the register with
a cart full of groceries and realize you didnt have enough cash to cover the bill. But today,
youre likely to pull out a debit or credit card and not think anything of it.
Youre Money Guides
Its hard now to imagine a time when those noncash options werent available especially if
you were born in the 1970s or later. Credit cards have been around since the 1950s, and debit
cards were introduced in the mid-1970s. By 2006, there were 984 million bank-issued Visa and
MasterCard credit and debit cards in the United States alone.
Though the two types of cards may be used interchangeably, there are notable differences
between them. Lets start with debit cards.
Debit cards are linked to your bank account so the money you spend is automatically deducted
from your account. They provide a convenient alternative to cash, especially if you do a lot of
shopping online. Debit cards can also help you budget. Use your card to pay your bills and dayto-day expenses and your monthly statement will provide a good snapshot of how much you
spend per month and where its going. Theres another benefit as well: Unlike credit cards, your
bank balance goes down with each debit card transaction, so youre less likely to overspend.
(Many banks offer overdraft protection that allows you to exceed your balance. But youll end
up paying interest, and maybe extra fees, on the money you borrow from your overdraft
account.)
With so many benefits to the debit card, why use a credit card at all? There are three main
reasons: You can spend more than you have or postpone paying, at least and you
typically get better rewards and better protection than you do with debit cards.
Adapted from: http://www.nytimes.com/2009/01/06/your-money/credit-and-debitcards/primercards.html
Credit cards basically allow you to use someone elses money (the card issuers) to make a
purchase while you pay the money back later. If you do so within the billing period generally,
15 to 45 days you can avoid paying any interest on it. The problem arises, of course, when
you dont pay the balance in full and are charged interest as well. That can quickly add up. If it
takes you two years to pay off a $500 balance, for example, and youre being charged 18
percent interest, youll end up paying nearly $100 more in interest.
If you use them responsibly though, credit cards can offer other advantages. They help build
your credit, as long as you pay your bills on time. Some also offer rewards that you can use to
get gifts, cash back or discounts for products, services and special events. They also provide
more protection if someone steals your card or bank information. If you notice a fraudulent
charge on your credit card account, you can call the card issuer, make a dispute claim, and the
charge should be removed from your balance. But if thieves steal your debit card information
and use it, it may take weeks for the bank to investigate your claim and replace the lost funds. In
the meantime, you may have to deal with a dwindling bank balance or bounced checks.
Federal law also protects you if you need to dispute charges on a credit card, but not if you use
a debit card or other forms of payment. If you paid cash or used a debit card, the retailer already
has your money. So you have a lot less leverage, and theres no guarantee youll get that
money back. But if you pay for something with your credit card and arent happy with the

purchase, your card issuer can legally withhold payment from the retailer until they resolve the
dispute, and you wont be charged.
Lets say youve decided you want a credit card, which one should you get? The answer
depends largely on whether you plan to pay off the balance each month.
If you know youll probably carry a balance, look for a plain-vanilla card with no annual fee and
the lowest annual interest rate available. (Any interest you pay on a carry-over balance will
offset any perks you could get through a rewards card.) You can compare several low-interest
credit cards at creditcards.com and bankrate.com, which both provide updated information on
dozens of different cards. You can also apply online for cards through either site, but limit your
applications to one or two to avoid hurting your credit.
Be aware that card issuers can raise your interest rate after youve gotten the card. So check
your monthly statements. (You should be aware, though; that the Federal Reserve has just
passed rules that will take effect in mid-2010 limiting the card issuers ability to raise your rate,
unless youre late with a payment.)
Call the card issuer if your rate has increased to try and negotiate a lower rate, or consider
transferring your balance to a lower-interest card. (Billshrink.com lets you see how much more
you could earn in rewards or save with a lower interest rate if you switched to various other
credit cards, based on your credit score and how much you spend each year.)
Adapted from: http://www.nytimes.com/2009/01/06/your-money/credit-and-debitcards/primercards.html
If you plan to pay your bill in full each month, seek out a card that provides rewards you actually
want whether thats cash back, frequent flier miles or points redeemable for gifts. The interest
rate shouldnt matter, since you wont be carrying a balance. But look for those with no annual
fee. Bankrate.com and creditcards.com also provide comparisons of cards by the types of
rewards offered, among other criteria. Generally speaking, if you plan to use your card a lot,
cash-back programs may be the best bet. Its easy to get the refund either through a check or
a credit on your account and you can use that money for anything. Many large banks also
offer debit cards with rewards, so it can be worth shopping around for them too.
Creditcards.com also provides a comparison of different prepaid and debit cards, based on
annual fees, related services and credit requirements.
For most people, using both a debit card and credit card makes sense. The key is not to spend
more than you have with either. If you can do that, youll be able to enjoy the benefits that each
provide.
Adapted from: http://www.nytimes.com/2009/01/06/your-money/credit-and-debitcards/primercards.html
Credit and Debit Cards: What You Need to Know
By JENNIFER BARRETT
Published: January 6, 2009
Article Questions
1. What is the main difference between credit cards and debit cards?
Debit cards only allow you to use your own money rather than a credit card loaning money.
2. List three benefits of debit cards.
Cant overdraw, security, no fees.
3. What is overdraft protection?

Line of credit banks offer just in case you write a check that bounces.
4. What is interest?
The fee they charge when late.
5. Why do credit cards charge you interest to borrow their money?
Thats how they make their money.
6. If you pay off your credit card balance within the billing period generally, 28 days, you can
avoid paying interest on it.
7. What if you take longer than the billing period to pay the credit card company back?
They add interest.
8. What if a thief steals one of your cards and uses it to make fraudulent charges? Would it be
safer for you if they stole your debit card or your credit card? Why?
Debit, because they need a pin to use it.
9. Not all credit cards are created equal. What are some possible differences between different
kinds of credit cards offered by different companies and why is it a good idea to shop around
for the best one? Some have lower or higher spending limits and also interest rates.
10. What is a credit score?
Your history with the credit company.
11. What could happen to your credit score if you dont pay off your credit cards on time each
month?
It will drop.
12. For most people, using both a debit card and credit card makes sense. The key is not to
over spend with either. If you can do that, youll be able to enjoy the benefits that each provide.
Adapted from: http://www.nytimes.com/2009/01/06/your-money/credit-and-debitcards/primercards.html
Activity
Go to the following website to see the hidden costs of using credit cards. Follow the
instructions for use below, and then answer the questions in the lesson guide.
Payment calculator: How long will it take you to pay off your credit card and how much interest
will you pay?
http://www.calculatorweb.com/calculators/creditcardmincalc.shtml
Instructions:
Choose an item youve always wanted to buy but you couldnt afford (choose something that is
at least $300). What is it? _____plane ticket______________
How much does it cost? ______$800.00__________________. Enter this number in the box
labeled current account balance.
Next, enter the credit cards annual interest rate. Enter 16% because this is an average for all
credit cards. Leave the minimum payment percentage at 3%.
Finally, enter how much you can realistically pay each month towards your new item. For
instructional purposes, put $20. This is going to show you how much more youll be paying for
the item if you dont pay it off in full at the end of the billing cycle. Hit calculate.
How much interest will you end up paying ON TOP OF your items purchase price?
$_______328.00___________
Adapted from: http://www.calculatorweb.com/calculators/creditcardmincalc.shtml
How long will it take you to pay off your new item? ____56 payments_______________

Short answer:
Explain why overspending on credit cards could easily lead to debt and financial ruin.
Credit is a game changer for most people. You need good credit in order to do anything in life. If
you dont have a good history you will never be considered for that loan you wanted or that new
car. Credit is something that you really cant get back so its best to stay on good terms.
Adapted from: http://www.calculatorweb.com/calculators/creditcardmincalc.shtml
Loans
If you ever plan to attend college, buy a car, or own a home, you will need a loan. It is important
that you become knowledgeable about loans because at some point in your life, you will likely
need one.
Read the following article on student loans, and then answer the following questions in the
lesson guide.
Student loans:
http://www.howitworks.net/how-student-loans-work.html
Article Questions:
1. There are four ways to raise money you need for college. What are they?
___loans______________, ______grants_______________,
____scholarships_______________, and _____parental contribution_______________.
2. Pick two from question 1 to compare and contrast (What are their differences and what are
their similarities?) Loans and grants. Loans are given but must be paid back in the future.
Grants are given and you are not expected to pay them back.
3. The majority of people cannot afford to pay upfront in cash for college expenses. Most
borrow--Where do the most common forms of loans come from? Federal loans, they come from
the government.
4. How much does a college education typically cost? $20,000.00
5. How do you apply for student loans? studentloans.gov
6. Like credit cards, loans charge __interest____________ in exchange for letting you borrow
large amounts of money. This is how loan companies/banks/the government makes money.
7. What are the two major student loan types in the U.S.? Federal and personal.
8. Loans can typically be repaid (circle one) before/during/after graduation.
Adapted from: http://www.howitworks.net/how-student-loans-work.html
Car Loans
Buying a car is a big investment. Most people cannot afford to pay cash for a new or used car,
so loans are made available to help.
Read the following article, and then answer the questions in the lesson guide.
http://www.e-personalfinance.com/answer/-How-do-auto-loans-work--.html
Article Questions:

1. Auto loans, like home loans, are secured by a ___bank_______. If you take out a loan to buy
a car, the finance company will hold __you_____ to your car until it is __paid__________. At
that point, it will sign over the title to _you_______.
2. Your monthly car payment is based on eight things. What are they? Credit, down payment,
time period, salary,
3. Why is your credit score so important in determining your interest rate on the loan?
The worse it is the more skeptical they are.
4. Why is it a good idea to shop for a loan before you go into the dealership to buy a car?
Its cheaper in the long run if you give more money upfront
5. ALWAYS READ THE __fine_________ PRINTS It is important to know what you are getting
yourself into when securing a loan. Dont buy a car without negotiating and asking a lot of
questions.
6. 0% interest or financing sounds great (it means you wont have to pay any interest on top of
the cost of the car). However, what will dealers do to make up for the lost interest income they
would normally receive?
Tax it.