When Tina was a teenager, she was naive about the responsibilities of personal finance. Like many teenagers who are lured into trouble by the temptation of easy credit, she thought she could get away with whatever she wanted as long as she had a credit card. But when she reached her limit, her credit card was rejected.
00:02:12.000Before I knew it, I was in way over my head and had to get some help.
00:02:17.000Like many teenagers who are lured into trouble by the temptation of easy credit, Tina was naive about the responsibilities of personal finance.
00:02:26.000Nothing can be more important to a person starting out in life than getting a proper understanding of how personal finances work.
00:02:33.000Teenagers are notorious for giving in to their desires without thinking ahead to the consequences.
00:02:39.000Before they know it, Teenagers can be in over their heads, owe more money than they can pay, and have to turn to parents, relatives, or outside credit counseling agencies for help.
00:02:51.000But that doesn't have to happen to you.
00:03:54.000Then some enterprising individual came up with the idea of a medium of exchange that could be accepted by farmers and hunters alike.
00:04:02.000Early money took the form of jewels or crude coins made of gold or silver.
00:04:07.000As society evolved and became more sophisticated, governments took on their responsibility of establishing standard units of value and issuing currency backed by gold or silver in the nation's treasury.
00:04:19.000In the modern world, we deal in coins and paper money or cash, but we also use financial vehicles offered by banks such as checks and credit cards to pay for goods and services.
00:04:31.000This is where things begin to get a little sticky and where you need to start paying attention.
00:04:36.000Financial institutions have had a long time to sharpen their skills at making money from unwary consumers.
00:04:43.000Ever since I was a little girl, Mom would always take us to the mall.
00:04:47.000She would always buy our stuff with credit cards.
00:04:49.000There are a lot of features that need to be considered when it comes to credit cards, and you'll find them all in the very small print, the disclosure statement that oftentimes kids don't read, adults don't read it.
00:05:02.000And so what ends up happening is you could buy a pizza for $10 on Friday night because you're starving.
00:05:45.000Let us consider the disadvantages to using credit cards.
00:05:49.000First of all, you commit future income or earnings to pay for something you will be using now.
00:05:55.000This decreases your spending power for what you can buy later.
00:06:00.000Secondly, buying on credit adds additional cost to items you purchase because you must pay finance charges that can run 22% or higher.
00:06:09.000Third, unless you are a seasoned credit card user with decades of experience, chances are you will be lured by the false perception of getting something for nothing.
00:06:20.000Fourth, if you misuse your credit card, spend beyond your limit, or don't pay on time, you will damage your credit record.
00:06:28.000A poor credit rating can haunt you for years and prevent you from getting college loans, car loans, house loans, even other credit cards.
00:06:38.000And fifth, credit cards can be lost, stolen, or misused by others.
00:06:43.000This can lead to a host of problems with a credit card holder that can go on for years and could result in a lawsuit.
00:06:50.000If they never seem to have any money and they end up using credit, or if they get behind on their bills and people are pestering them to pay, those are always red flags that they really need to cut back and live within their means a little bit more.
00:07:08.000And if they are using credit, then they need to either cut up that card or put it in a glass of water and put it in the freezer until they can feel comfortable with it again.
00:07:19.000However, there are many benefits of having good credit that result from using credit responsibly.
00:07:25.000The first step is understanding what credit means.
00:07:29.000Credit comes from the Latin word credo, meaning to believe or to trust.
00:07:34.000Credit is a merchant's faith in your ability Later, to pay for goods or services he gives you today.
00:07:42.000When someone, whether it's a big company or your mom, gives you credit, they are entrusting you with an obligation to repay.
00:07:50.000If you are responsible and do what you say you are going to do, you will be given more credit.
00:07:56.000If not, you'll lose the credit you have.
00:08:02.000In order to use credit wisely, it's important for you to understand all kinds of credit accounts that are generally available to consumers.
00:08:10.000Installment credit is primarily used to purchase large expensive items such as automobiles, major appliances, and furniture.
00:08:17.000Installment credit breaks the total sales price, taxes, and interest down into a number of equal payments, usually on a monthly basis.
00:09:16.000It was another $150 a month because I had some tickets.
00:09:20.000Most dealers will want you to carry insurance with a comprehensive coverage that can add $100, $200 or more to your monthly expenses.
00:09:28.000To operate a car, you must buy gas, oil, tires, and pay for periodic upkeep and maintenance.
00:09:34.000The Jeep needed the tires at $100 each and then the transmission broke down.
00:09:39.000So what seemed like a good deal at $277 a month has now become $500, $600 or higher.
00:09:47.000A primary danger of signing up for a big ticket item on an installment plan is in overlooking these additional costs that can make the actual cost more than double your initial estimate.
00:10:01.000All I was earning at my job and plus overtime.
00:10:04.000I had to sell it just to pay off the loan.
00:10:07.000The second type of retail credit is the revolving charge account.
00:10:12.000Most apartment stores issue charge cards that allow you to charge purchases up until you reach a predetermined credit limit.
00:10:20.000A revolving charge account stays open as long as you pay at least the minimum amount due by the due date printed on your monthly statement.
00:10:30.000A lesser known account is a 30 day account usually offered by local merchants who give you 30 days same as cash opportunity.
00:10:38.000Buying items you have cash for and paying the full amount within 30 days is an excellent way to start building a good credit record.
00:10:46.000Using retail credit wisely requires knowledge, discipline, and common sense as indicated by the following guidelines.
00:10:54.000Remember that a credit line is a debt, money you owe, and must repay.
00:10:59.000Weigh each purchase in your mind the same as if you were paying cash.
00:11:04.000Pay each statement on time to avoid late charges and build a good credit history.
00:11:11.000Do not establish more credit accounts than you can easily handle.
00:11:15.000Note how much of your monthly payment is going to pay your debt.
00:11:19.000If, for example, the minimum amount due is $20 and finance charges are $5, realize that you are only paying $15 towards what you owe.
00:11:29.000The credit industry loves minimum payment customers because that's how they're making their bread and butter.
00:11:37.000In fact, a minimum paying customer will be solicited for more credit in the future.
00:11:43.000When they lower the monthly payment, they lower it to maybe the interest, or even a little lower, and you're paying all interest and nothing for the principal.
00:11:56.000Most credit cards are issued as revolving credit and allow you to make purchases up to a predetermined spending limit.
00:12:03.000This limit is set by the credit card company according to such factors as your past credit history, your income, your occupation, and so forth.
00:12:12.000When starting out, your credit limit will be low, perhaps a few hundred dollars, but as you prove yourself by paying on time, Your account will be reviewed and your limit increased if you maintain a good record.
00:12:25.000Credit card companies are in business to make money and they do it by charging interest.
00:12:32.000As innocent as credit card applications may appear and as excited as you may be to get a MasterCard in the mail, you need to look closely and compare the several key variables that can over time make a difference of hundreds or thousands of dollars.
00:12:49.000The first thing to look for is the APR or annual percentage rate of interest you will have to pay on your unpaid balance.
00:12:57.000This rate can vary from 3 or 4 percent to as high as 22 percent or more.
00:13:03.000You want to get the lowest rate possible.
00:13:06.000You also need to be aware of the late payment fee and over-limit fee.
00:13:11.000Late payment fees are charged when your monthly payment does not reach the company before the payment due date.
00:13:18.000These fees can be $10, $15, even $25 or more, and no excuses are acceptable.
00:13:23.000Your checks must reach the company and be posted before the payment due date.
00:13:28.000Some companies will get you to sign up with a low late payment fee, then increase the fee later on as shown here by a simple mention on your statement.
00:13:37.000This is a legal notice, so be sure to read your statements carefully.
00:13:41.000If your minimum payment due is 15 and you missed the July 4th due date, this company will charge you a $29 late fee.
00:13:50.000Another trick is to make a due date on a holiday, like this company, when no mail will be delivered.
00:13:57.000These are the kinds of things that can add up and make a $10 pizza cost you $100 or more in the long run.
00:14:06.000Overlimit fees are charged when you exceed your pre-set spending limit.
00:14:10.000It would seem logical that if you tried to make a charge and the amount of the charge that would cause you to run over the limit, the charge would be denied.
00:15:21.000Debit cards are like secured credit cards, but actually deduct the amount of your expenses, plus a small transaction fee from the amount you have on deposit.
00:15:31.000Prepaid phone cards work the same way.
00:15:34.000The ATM or automatic teller machine card works like a debit card to allow you to withdraw cash from your checking or savings account.
00:15:42.000This card usually requires no credit history, just a bank account with funds on deposit.
00:15:48.000There are certain dangers of using an ATM card you need to be aware of.
00:15:52.000First, you may forget or lose your PIN number and the machine won't work.
00:15:57.000Second, you need to make certain that you are not observed entering your PIN number by a stranger.
00:16:03.000As fraud can occur when strangers get a hold of this key information.
00:16:08.000Thirdly, take your transaction receipt with you as leaving it by the machine is another way to leave yourself vulnerable to theft.
00:16:16.000And fourth, be sure to keep a record of your withdrawals.
00:16:20.000The greatest temptation and greatest risk to your good credit is to forget about the cash the machine gives you.
00:16:26.000It will be a rude awakening when checks start to bounce and merchants begin to call.
00:16:32.000This brings us to the subject of checking accounts, a source of convenience or dread depending upon how you handle your personal business.
00:17:25.000Not only will a bounce check cost you $25 at the bank, but the merchant will charge you $25 too.
00:17:32.000That $10 pizza paid for with a bad check can end up costing you $60 or more if that check also cost other checks to bounce.
00:17:40.000One of the most important things you can do in life is to maintain a good credit rating.
00:17:46.000As the world becomes more populated and less personal, computerized data is increasingly important to establish who and what we are.
00:17:55.000A person's credit rating is one of the first things checked by employers, Landlords, car salesmen and other people who make decisions about your future.
00:18:06.000In the United States, there are three primary credit reporting agencies, Equifax, TransUnion and TRW. Every time you apply for or use a credit card or charge card, these agencies collect information about you and your payment history.
00:18:21.000Here are seven ways to build and maintain a good credit rating.
00:18:25.000Write your name the same way on all credit applications.
00:18:30.000Make all your credit card and charge card payments on time.
00:18:34.000Always pay at least the minimum amount required.
00:18:37.000Check your monthly statements for accuracy and correct any mistakes.
00:18:41.000When you move, notify your creditors promptly about your new address.
00:18:46.000If you run into trouble, alert your creditors quickly and make payment arrangements.
00:18:50.000Review your credit report periodically to verify information.
00:18:55.000If you ever apply for a credit card and are turned down, you are entitled to a free copy of your credit report under the Fair Credit Reporting Act.
00:19:04.000Your letter will state the reason for denial and give you an address to write to.
00:19:10.000If at any time you get in over your head and can't pay, seek out qualified help in agencies such as consumer credit counseling.
00:19:19.000What you tell them is completely confidential and they will take your side and stop creditors from hounding you while you get reorganized.
00:19:28.000There may be parents out there who are in a position financially to help get them out of debt instead of going someplace else.
00:19:35.000But I think that the individual would learn a little bit more if they go through the process themselves, if in fact they're the ones who got themselves into that situation.
00:19:47.000The primary way to avoid all of the problems we've mentioned so far is to live by this golden rule.