Have you ever had to make a decision that you did not really like but knew it would do good for you in the end? Have you ever had to make a tough decision like this with money? Maybe paying your parents back on Friday meant that you could not go to the movies with your friends on Saturday. Sometimes debtors need to make tough choices that will benefit them in the end.
Sometimes people make the choice to take out an additional loan to pay off their credit cards. Doing so will consolidate all of their debt with one financial institution and should drop their interest rate. The one monthly payment to pay off their new loan should be less money than before they consolidated their debt. As a consequence, taking out another loan is debt. The Credit Bureaus note the new line of credit and the consumer’s credit score drops. It feels good to pay off several credit card companies with the new money from the loan; which may have even boosted your credit score temporarily. However, after a few months the new loan hits your credit and your score will drop- right back to where you started from. Is it worth it? What is the end goal? What good does a credit score do? Do you need a credit score?
What options are available, without opening another line of credit, to pay off debt? What happens if the loans are not or cannot be paid off?
Read the letter that “J” wrote to Penny, in the Tampa Bay Times. What do you think? Write a letter to advise J on the best way to pay off debt. Where can help be found when looking for support in debt management? Using what you have learned, share whether or not an additional loan should be taken out to pay off debt in the future.
Extension: Create a scenario in which it would not be advisable to open a new line of credit to pay off existing credit. Write about the FICO score and how financial decisions affect the movement of a credit score. What items tarnish your credit for seven years or longer?
SS.912.FL.4.5: Explain that lenders make credit decisions based in part on consumer payment history. Credit bureaus record borrowers’ credit and payment histories and provide that information to lenders in credit reports.
SS.912.FL.4.6: Discuss that lenders can pay to receive a borrower’s credit score from a credit bureau and that a credit score is a number based on information in a credit report and assesses a person’s credit risk.
SS.912.FL.4.7: Describe that, in addition to assessing a person’s credit risk, credit reports and scores may be requested and used by employers in hiring decisions, landlords in deciding whether to rent apartments, and insurance companies in charging premiums.
SS.912.FL.4.8: Examine the fact that failure to repay a loan has significant consequences for borrowers such as negative entries on their credit report, repossession of property (collateral), garnishment of wages, and the inability to obtain loans in the future.
SS.912.FL.4.9: Explain that consumers who have difficulty repaying debt can seek assistance through credit counseling services and by negotiating directly with creditors.
SS.912.FL.4.10: Analyze the fact that, in extreme cases, bankruptcy may be an option for consumers who are unable to repay debt, and although bankruptcy provides some benefits, filing for bankruptcy also entails considerable costs, including having notice of the bankruptcy appear on a consumer’s credit report for up to 10 years.
What many new homeowners don’t know is that a mortgage is a whole lot more than a house payment. While owning a home can bring many assets, it comes with liabilities as well. A house payment is only for those who understand and know the responsibilities, financial and otherwise, that come with it. Many believe that the American Dream is to own a home. It is for over 50% of the American population, but many millennials have made the shift to renting. Home ownership much more complicated than making that monthly mortgage payment.
What do you know about owning a home? What do you know about renting? Think of some advantages to owning your home. Make a list of positives and negatives that come with homeownership. Different people find different reasons to support getting in debt to achieve the American mortgage. Put a star by the two most advantageous to suit your personality. Mark a star next to the two most disadvantageous that make you wary of signing your name on a mortgage contract.
Consumers need to be educated about any product that they want to purchase and what responsibilities are involved. Where can you look to find information about mortgages? What about the responsibilities of homeownership? Does the government want you to be a homeowner or a renter? Are there differences with insurance if you are a renter compared to an owner? When you read through the article 3 Things Change, write down what a potential homeowner needs to be aware of when opting to buy rather than rent.
What trends do you notice the article suggests “take over” the mind of a homeowner? Compare your list with the article. What can you add? Talk with a partner on how your lists compare.
Together as partners, create a “Thoughts for a Potential Home Owner” pamphlet. Come up with three different types of people, identifying them based on: income, personality, habits and goals. Draw or make an avatar replica of each imaginary person and come up with a short bio for each one. Identify your three personalities as “renter,” “home owner” and “on the fence.” Write a paragraph that will help your “on the fence” decision maker come to a conclusion. Be sure to list multiple advantages and disadvantages to both owning a home and renting. Then compile a list of eight things to consider about homeownership, whereby you demonstrate that you understand how owning a home affects other areas of your life. Present your pamphlet, personalities, biographies, and thoughts to consider. Let the rest of your class decide what your “on the fence” personality will do based upon the content you share and what you have learned as a class.
Extension: Find a property online to rent, and one to buy. Create a plan for your Owner Avatar and your Renter Avatar. Describe the rental and buying process and what decisions are applicable for each home.
Financial Literacy Standards
SS.912.FL.2.1: Compare consumer decisions as they are influenced by the price of a good or service, the price of alternatives, and the consumer’s income as well as his or her preferences.
SS.912.FL.2.2: Analyze situations in which when people consume goods and services, their consumption can have positive and negative effects on others.
SS.912.FL.2.3: Discuss that when buying a good, consumers may consider various aspects of the product including the product’s features. Explain why for goods that last for a longer period of time, the consumer should consider the product’s durability and maintenance costs.
SS.912.FL.5.2: Explain how the expenses of buying, selling, and holding financial assets decrease the rate of return from an investment.
SS.912.FL.6.4 Explain that people may be required by governments or by certain types of contracts (e.g., home mortgages) to purchase some types of insurance.
SS.912.FL.1.7 Discuss how peoples sources of income, amount of income, as well as the amount and type of spending affect the types and amounts of taxes paid.
Created by Deborah Kozdras and Brittany Sampson