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:
A credit card is a safe alternative to cash because you will not be carrying cash in your wallet
that can be lost or stolen. You can build a good credit history with credit cards which can help
you get loans to buy stuff. A credit card can bail you out of an emergency and credit cards can
give you time to pay them back. Disadvantages of a credit card would be that they are way too
tempting and you can get into credit card debt very easily which can be difficult to get out of.
2. Define the following words:
a. Credit Limit: a set limit by the credit card company on how much you can spend
b. Minimum Monthly Payment: the lowest payment that you can pay to keep your credit
card active
c. Grace Period: a period of 25 days where if you pay in full, you wont get a finance
charge
d. Late Fees: if you do not pay your bill by the due date (day your grace period ends) you
get charged a fee
e. Interest Rates: what you get charged when you use your credit card and do not pay in
full
f. Secured Credit Cards: offered to those with poor credit history or no credit history at all
g. Credit Reports: a record of your borrowing and paying habits
Activity
3. Complete the Credit Card IQ Quiz under Play. There are seven questions. Enter the
correct answers in the following blanks:
1.
2.
3.
4.
5.
6.
7.

True
True
True
False
False
True
True

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 cause trouble if you dont monitor your bank statement and how much you have
available to spend.
Read the following article, then answer the questions found in the lesson guide:
Credit and Debit Cards: What You Need to Know
By JENNIFER BARRET
Published: January 6, 2009
A generation ago, it wasnt all that unusual to be out for dinner with friends of 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.
Your 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 pay, at least --- and you typically get
better rewards and better protection than you do with debit cards.
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,
15-45 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% 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 ca 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 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 perk 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.)
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, cashback 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.

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 are linked to your bank account and credit cards are small loans.
2. List three benefits of debit cards.
They are a convenient alternative to cash, help you budget, and make paying bills easy.
3. What is overdraft protection?
Overdraft protection allows you to exceed the balance you have in your bank account.
4. What is interest?
Interest is a certain percentage of money that is added.
5. Why do credit cards charge you interest to borrow their money?
They charge you interest to make money.
6. If you pay off your credit card balance within the billing period --- generally 15-45 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 charge you interest on what you owe.
8. What if a thief steals one of your credit cards and uses it to make fraudulent charges?
Would it be safer for you if they stole your debit card of your credit card? Why?
It would be safer if they took your credit card because the charges can be removed right away
and the card can be canceled.
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 credit card companies charge annual fees and have high-interest rates, while others have
advantages such as cash back policies.
10. What is a credit score?
A credit score is a reflection of your credit history in the score of numbers.

11. What could happen to your credit score if you dont pay off your credit cards on time
each month?
Your credit score can decrease.
12. For most people, using both a debit card and credit card makes sense. The key is not to
overspend with either. If you can do that, youll be able to enjoy the benefits that each
provide.
Activity
Go to the following website to see the hidden costs of using credit cards. Follow the
instructions for use below, 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://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? A laptop. How much does it cost? $399.00. 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? $68
How long will it take you to pay off your new items? 2 years
Short Answer:
Explain why overspending on credit cards could easily lead to debt and financial ruin.
Overspending on credit cards can easily lead to debt because it can take a long time to pay
everything off and you could still be purchasing items on those cards while you are trying
to pay your previous payment off.

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, 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?
Need-based aid, scholarships, work-study programs, and student loans.
2. Pic two from question 1 to compare and contrast (What are their differences and what
are their similarities?)
Student loans are borrowed money and scholarships are free money for a talent that you have,
both are used for schooling.
3. The majority of people cannot afford to pay upfront in cash for college expenses. Most
borrowwhere do the most common forms of loans come from?
The most common loans for college expense come from the government.
4. How much does a college education cost?
A college education typically costs $60,000.
5. How do you apply for student loans?

You apply for student loans by FAFSA then chose they type of loan that you would like to
receive.
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 make money.
7. What are two major student loan types in the U.S.?
Two major student loan types in the U.S. are Perkins and Stafford.
8. Loans can typically be repaid (circle one) before/during/after graduation.