ABC/123 Version X 1
Title
ABC/123 Version X
1
Case Study: Carol Jones
FIN/420 Version 6
1
University of Phoenix Material
Case Study: Carol Jones
Carol works as a business representative for an import/export company. Her job provides her with the opportunity to travel and experience new things. Because she travels so much, Carol feels that she does not have a handle on her finances. She has decided to pay a visit to a financial advisor for help.
Carol’s Salary
$2,000
Auto Payment
$262
Home
$100,000
Mastercard
$5,000
Int 15%
Gas/Heating
$100
Visa Card
$3,000
Int 15%
Electric
$125
Bloomingdale Card
$1,500
Int 29%
Water
$60
Personal Loan
$5,000
Int 5%, 60 mths
Internet/Cable
$150
Mortgage
$95,000
Phone
$50
Mortgage Payment
$796
Cell Phone
$200
Car
$20,000
Food
$250
Gym Membership
$20
Mortgage Payment
$796
Personal Loan Payment
$94
Car Insurance
$165
Carol’s 401K
$50,000
Savings
$500
Auto Loan
$15,000
Checking
$1,000
Visa Payment
$60
Lawn Service
$100
Bloomingdale Payment
$30
Mastercard
$100
Write a 700- to 1,050-word paper that addresses the following items from the case study:
· Apply financial planning concepts to advise Carol and explain how Carol can benefit from financial planning. Describe the benefits of using financial statements in financial planning.
· Utilize and explain strategies that Carol can use to increase her net worth. How does this affect her cash flow?
· Describe the sources available for asset management.
· Compile a list of legal protections that can be used to protect Carol’s assets.
· Using the information provided for Carol create a balance sheet and cash flow statement. Estimate Carol’s overall net worth.
Click the Assignment Files tab to submit your assignment.
Copyright © XXXX by University of Phoenix. All rights reserved.
Copyright © 2016 by University of Phoenix. All rights reserved.
6 Building and Maintaining Good Credit
YOU MUST BE KIDDING, RIGHT?
People with no prior credit history or those who show poor repayment patterns in the past often wonder if they will ever be able to get credit, especially during economic times when credit is difficult to obtain. Simply put, will any lender want to trust them? Which of the following is true about the availability of credit for people in such situations?
A. Sadly, they will be doomed to a lifetime of no access to credit.
B. There are a few lenders who will be happy to provide credit to such borrowers.
C. Most of the “big name” banks will grant them credit.
D. Credit will be relatively easy to obtain for such borrowers just about anywhere.
The answer is B. It is difficult for people with poor or no credit to obtain credit from most banks and credit unions. But some lenders do accept such applicants, and they will charge high interest rates. Building and maintaining a good credit history does more than get you access to credit. It will also get you low interest rates!
LEARNING OBJECTIVES
After reading this chapter, you should be able to:
Explain reasons for and against using credit.
Establish your own debt limit.
Achieve a good credit reputation.
Describe the common sources of consumer credit.
Identify signs of over indebtedness, and describe the options that are available for debt relief.
WHAT DO YOU RECOMMEND?
Hanna Savarin, age 25, is a nurse practitioner with the local health department in Collegedale, Tennessee. She earns $65,000 per year, with about $9000 of her income coming from overtime pay. Her disposable income is about $3800 per month. Her employer provides a qualified tax-sheltered retirement plan to which Hanna contributes 4 percent of her salary and for which she receives an additional 4 percent matching contribution from her employer. (She could contribute up to 6 percent with an equal employer match.) Hanna has $29,000 in outstanding student loans on which she will pay $454 per month over the next five years, and her total credit card debt is $3000 on which she has been paying $120 per month. Otherwise, she is debt free. Hanna would like to purchase a new or late-model used car to replace the car she has been driving since her senior year in high school. She has $2000 to use as a down payment.
What would you recommend to Hanna on the subject of building and maintaining good credit regarding:
1. Factors she should consider regarding her ability to take on additional debt?
2. The impact of her current debt on her ability to obtain a loan to buy a vehicle?
3. Where she might obtain financing for a vehicle loan?
4.The effect of taking on a loan on her overall financial planning?
YOUR NEXT FIVE YEARS
In the next five years, you can start achieving financial success by doing the following related to building and maintaining good credit:
1. Protect your credit reputation as carefully as you would safeguard your personal reputation.
2. Determine your own debt limit rather than relying on a lender before deciding to take on any debt.
3. Obtain copies of your credit bureau reports regularly for free, and challenge all errors or omissions you find.
4. Use complicated personal ID numbers and login passwords for online credit account management.
5. Always repay your debts in a timely manner.
Your financial success depends heavily on your ability to make the sacrifices necessary to spend less than you earn. This allows you to save money for future uses. Yet, you are likely to use credit to buy housing and vehicles as well as use credit cards . However, paying high interest rates and overuse of credit impedes your financial success.
credit cards Cards that allow repeated use of credit as long as the consumer makes regular monthly payments.
The term credit describes an arrangement in which goods, services, or money is received in exchange for a promise to repay at a future date. Consumer credit usually takes the form of a loan that is repaid in equal payments over a set period of time. You also are likely to use revolving credit, which allows repeated use of credit as long as regular, monthly payments are maintained. Credit cards are an example of revolving credit.
credit An arrangement in which goods, services, or money is received in exchange for a promise to repay at a future date.
loan Consumer credit that is repaid in equal amounts over a set period of time.
There are valid reasons for using credit. You should use credit only when necessary, pay low interest rates, make repayments on time, and repay amounts owed as quickly as possible.
6.1 REASONS FOR AND AGAINST USING CREDIT
Credit represents a form of trust established between a lender and a borrower. If the lender believes that a prospective borrower has both the ability and the willingness to repay money, then credit will be extended. The borrower is expected to live up to that trust by repaying the lender. For the privilege of borrowing, a lender requires that a borrower pay interest and sometimes other charges.
You can distinguish between good and bad uses of credit. Among the good uses are a mortgage loan to buy a home, a loan to open a business, and to finance education expenses. These purposes have benefits because the funds are invested in ways that can have a long-term payoff. Bad uses of credit include using a credit card or student loans money to support a better lifestyle than really needed and loans for extravagant homes and vehicles.
LEARNING OBJECTIVE 1
Explain reasons for and against using credit.
6.1a Good Uses of Credit
There are good reasons for using credit:
1. For convenience. Using credit cards simplifies the process of making many purchases. Convenience use is justified only if the card balance is paid in full each month, however. You do not want to be paying for today’s restaurant meal for months or years in the future.
2. For emergencies. Consumers use credit to pay for unexpected expenses such as emergency medical services and automobile repairs.
3. TO make reservations. Most motels, hotels, and car rental agencies require some form of deposit to hold a reservation. A credit card number can serve as such a deposit, allowing guaranteed reservations to be made over the telephone. In many cases, the hotel will notify the credit card issuer to put a hold on your account for the anticipated total amount of the charge. This common practice is called credit card blocking .
credit card blocking Occurs when hotel or other service providers place a hold on a card holder’s account to reflect the anticipated cost of services.
4. TO own expensive products sooner. Buying big ticket items such as a home or automobile on credit allows the consumer to enjoy immediate use of the product. Many expensive items would not be purchased (or would be bought only after several years of saving) without the opportunity to pay for them over time. The expected life of the product should be at least as long as the repayment period on the debt.
5. To take advantage of free credit. Merchants sometimes offer “free” credit for a period of time as an inducement to buy. Free credit, however, should not be used to buy a more expensive item than you can afford. Known as “same as cash” or “interest-free” terms, these programs allow the buyer to pay later without incurring finance charges. The free credit lasts for a defined time period, but interest may be owed for the entire time period if the buyer repays even one day after the allotted free-credit period ends.
6. For protection against rip-offs and frauds. Internet and telephone purchases made on a credit card can be contested with the credit card issuer under the guidelines of the Fair Credit Billing Act (FCBA), as discussed more fully in Chapter 7. The protections afforded by the FCBA are not available when using a debit card.
7. To obtain an education. The high cost of education has forced many students to use student loans. This may be one of the better uses of credit, as the borrower is investing in himself or herself to raise the quality of life and/or income in the future. The amount borrowed should be compared…
