Household Budgets, Credit Cards and Electronic Banking

A MERICAN
C ONSUMER
C REDIT
C OUNSELING
THE CREDIT COUNSELING PROFESSIONALS
AMERICAN CONSUMER CREDIT COUNSELING INC.,

130 Rumford Avenue, Suite 202
Newton, MA 02466
1-800-769-3571
www.moneymanagmentschool.org
Table of Contents
Section 1: Household Budgeting Information .................................................................1

• Introduction To Household Budgets.............................................................................2
• Consumer Spending Statistics......................................................................................5
Section 2: Budgeting and Planning Tips ............................................................................7

• Valuable Tips to Save Money........................................................................................8
• Savings Strategies and Planning Goals......................................................................21
• Tax Planning Tips.......................................................................................................23
• How to Check out a Company....................................................................................24
• Valuable Books to Read.............................................................................................24
Section 3: Information About Credit Cards .....................................................................25

• What is a Credit Card?...............................................................................................26
• Qualifying for a Credit Card......................................................................................29
• What are the Costs Associated with Credit Cards?....................................................30
• Other Features of Credit Cards..................................................................................31
• How Many Credit Cards do you need?......................................................................32
• Card Holder Protections.............................................................................................33
• Kinds of Credit Accounts...........................................................................................34
• Credit Cards...What to do if They’re Lost or Stolen...................................................34
• Credit Card Blocking.................................................................................................35
• Beware of Gold and Platinum Card Offers.................................................................35
• Ten Tips to Save Yourself from Credit Card Fraud....................................................36
Section 4: Information on Electronic Banking ................................................................39

• Introduction to Electronic Banking............................................................................40
• Electronic Fund Transfers..........................................................................................40
• Electronic Fund Transfers Disclosures.......................................................................41
• Electronic Fund Transfers Errors................................................................................42
• How to Deal with Lost or Stolen EFT Cards.............................................................42
• Limited Stop-Payment Privileges...............................................................................43
• Other Rights on EFT..................................................................................................43
• Tips on EFT................................................................................................................43
• Electronic Check Conversion......................................................................................44
• Guide to Online Payments..........................................................................................44
• Where to File EFT Complaints...................................................................................46
“Today’s Education is Tomorrow’s Success”

A Personal Message From The Authors...
If you’re looking to create a brighter tomorrow for yourself and your family, it’s time to
further your financial knowledge by reading this book. Our mission is to arm you with
the educational tools to improve your money management skills.
This book will provide you with valuable information about financial assistance programs
for students, choosing a lender, your responsibilities as a borrower, federal assistance and
much more.
We encourage you, your family and friends to read this entire book. Doing so will
expand your financial knowledge and empower you to succeed in regaining contol
of your personal and financial future.
We wish you luck and much success!
Third Edition - Rev.01-20-06

Copyright © 1999 Debt Alliance Service, LLC®
Disclosure Statement: The authors of this publication provide general information, not legal or accounting advice.
These materials have been developed to teach, educate, and help individuals understand household budgets, credit cards
and electronic banking. Always consult with your own financial, tax or legal advisor when dealing with savings or investments.
SECTION 1
Household
Budgeting
Information
SECTION 1 – Household Budgeting Information
Introduction To
Household Budgets
Most consumers in the United States have trouble paying their everyday household bills, not because they don’t
have the money, but due to improper budgeting of their money. Every day, thousands of consumers face
financial crises at some point in their lives. Financial crises can be caused from personal illness, family illness,
loss of job, death in family, or, the most common, overspending.
We live in a society that has taught us to “buy now, pay later.” This method has caused consumers to overspend
and allowed them to become “knee-deep in debt.” Consumers need to take control of their spending and realize
that their financial situation can be overcome with proper planning and budgeting.
The first step that a consumer should take is to prepare a household budget, which will identify these two areas:
• How much money (income) they deposit into their bank every week, every two weeks or a month; and
• How much money they spend on living expenses each month
The goal in a household budget is to make sure that your monthly living expenses do not exceed your monthly
income.
1. What is a household budget?

A household budget is a spreadsheet that shows you the flow of money in your everyday life. A budget can help you
determine where you are overspending as well as help you adjust bad spending habits. A budget is
comprised of three areas:
• Net Income – Means your salary, wages, child or alimony support, social security, pension,
investment earning, etc. Net income is the amount you bring home after deductions (such as taxes,
insurance, pension contributions). Net income is used to maintain a household budget, which pays all
your living expenses in your everyday life.
• Living Expenses – Means your house or rent payment, food, utilities, insurance (auto, life & health),
education, auto payments, gasoline, credit cards, loans, entertainment, etc.
• Savings – This is the amount of money that is left when you take your monthly net income minus
your monthly living expenses. As a general rule of thumb, you should be saving 10% of your income
each month into a bank account or other investment vehicle.
2. What is cash flow?

When you prepare a household budget you can predict monthly net income and monthly living expenses.
When you minus monthly living expenses from monthly net income, you can monitor your cash flow.
Understanding your cash flow will allow you to have “disposable net income” each month for savings,
vacations, gifts, etc.
3. What is disposable net income?

Disposable net income is the amount of money that you are left with after you pay all your monthly living expenses
from your monthly net income. Most consumers have a “deficit” each month instead of disposable net income.
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4. What is a deficit?
A deficit is where your monthly living expenses amount to more than your monthly net income. Many
consumers use their future paycheck to pay for past-due bills and living expenses. Sticking to a well-planned
household budget can help you avoid a deficit.
5. What is the best way to keep track of my spending?

The most common and simplest way to track spending is to take a piece of paper (or use a computer) and write
down all your monthly living expenses and other monthly bills. Based on your monthly net income, you should
set “target amounts” per month for living expenses (such as $200 for food, $100 for entertainment, etc.). By
setting target amounts, you can monitor each month where you are overspending. Overspending leads to
financial problems.
6. How do I figure out what my living expenses are each month?

You can start by listing all of your fixed expenses each month (such as housing, auto, insurance, food, etc.) as
well as non-fixed expenses (entertainment, personal care, auto repairs, medical, travel, etc.). The best way to
predict your non-fixed expenses is to look at your check register for the past six months. This will give you a
rough idea where to set target amounts for non-fixed expenses.
7. How much money should I be saving each month?

Consumers should discipline themselves to save a minimum of 10% of their monthly net income. If you can
save more, we encourage you. This savings should be put into a separate bank account from the account you
pay bills from. Keep in mind that banks make it very easy to access your money through ATM machines. This
savings account should not be tied to your ATM card.
8. How much money should I have for an emergency?

You never know when an emergency will strike (loss of job, death in family, new car, etc.). It is always
recommended that you plan for an emergency. The most common emergency that may occur in your life is a
loss of job. As a rule of thumb you should open an emergency fund account at your bank and you should set
aside “two times” your monthly living expenses. Meaning, if your monthly living expenses are $1,500 a month,
you need to have $3,000 saved in your emergency fund account.
9. Is it good to keep all my money in a checking account?

No. Checking accounts should only be used to pay monthly living expenses and other bills as they become due.
It is recommended that you set up several accounts for different uses of your money. Here are some of the
accounts that you might consider setting up:
• Personal Checking Account – This account should be used to pay all monthly living expenses
and other household bills. You should always deposit all your net income checks into this account and
transfer to other accounts as needed.
• Entertainment Fund Account – Each month, as you receive your net income check(s), you should
transfer your target amount that you allocated for your entertainment into this account. The main
reason for this is so you don’t overspend your entertainment amount. If you know that there is only a
certain number of dollars in your account, you will adjust your spending and your lifestyle.
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• Money Market Savings Account – Each month as you receive your net income check(s), you should
transfer a minimum of 10% of that income into this savings account. This money can be for a down
payment of a home, fund an education, pay for a wedding, purchase a new car or pay for a vacation.
Whatever it may be, you can rest assured that each month you are building a nest egg for the future.
• Emergency Fund Account – If possible, each month you should put a portion (five percent) of your
net income into this account. An emergency can strike at any time. You and your family need to be
prepared in that event. Also, in this account you should deposit monthly payments for bills that are
paid quarterly, bi-annually or annually (such as car registration, insurance, property taxes, etc.). By
putting money away each month you will keep current when bills are due and you won’t be stressing
out at the last minute wondering how you plan to pay the bill.
NOTE: All these accounts listed above can be set up at any major bank. Ask your bank
representative for details.
10. How can I control my spending and budget?
First, you need to control your emotion and impulse that stimulates your desire to spend money. Second, you
should keep close track of what you spend every day. Ask yourself, “What can I realistically do without? Maybe I
should bring my lunch instead of eating out.” You should start looking at your budget and see if you can cut costs
on your “fixed” monthly living expenses. In addition, you should always be able to cut back on personal care,
hobbies and entertainment. Don’t stop completely, just cut back. This alone should increase your monthly cash flow.
11. I am always behind in bills. How can I fix it?

Control your budget and it will control your spending. By controlling spending you can budget enough money
to pay all your bills. As we indicated earlier you need to set “target amounts” for each monthly living expense.
You must have the discipline to pay “fixed” monthly living expenses before “non-fixed” expenses. Personal care,
hobbies and entertainment should be last on your budget after all “fixed” monthly living expenses are paid. If
you can live by this method, you should never play the catch-up game again. In some cases, it might be wise to
obtain a second job (part-time) in order to fix your problem.
12. I’m addicted to credit cards. How can I control them?

First, you need to remove all your credit cards except your ATM card from your wallet and lock them up in a safe
place. You need to remove the temptation of “buy now, pay later.” You should create a spreadsheet of all your cards,
balances owed, and interest rates. You should start paying down the highest interest rate card first. As a rule of thumb,
take the minimum payment on the card and add it to the finance charge and that should be your fixed minimum
payment each month until the balance is paid in full. Make sure that you make only the minimum payment on the
rest of the cards. If you can pay more, that’s great. Once you have paid the highest card off, repeat the process on the
next card and so on. Note: Make sure that you do not incur late fees. This will only extend your payoff time. If you do
not have the discipline to control your credit cards, you should consider a credit counseling program.
13. What is revolving debt?

Anyone or any business who grants you credit and allows you to carry a balance each month is considered to
have extended you “revolving debt.” Credit cards, and department store cards are considered revolving debts.
14. What is the difference between interest and finance charge?

Most revolving debts like credit cards have a fixed “interest rate” such as 15.9%. The interest rate and unpaid revolving
balance is used to calculate your finance charge. The finance charge is the creditor’s profit margin that is added to your
unpaid revolving balance each month.
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Consumer Spending Statistics

U.S. Department of Labor, Consumer Expenditure Survey, 1996-99, May 2001, Report 949
The Department of Labor has put this chart together so you can review where consumers spend their
money each year. This chart below is based on 100% of a consumer’s monthly income.
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NOTES:
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SECTION 2
Budgeting and
Planning Tips
SECTION 2 – Budgeting and Planning Tips
Valuable Tips to
Save Money
1. TRANSPORTATION
• Airline Fares:
Tip 1 – To obtain the lowest price on a round-trip airfare ticket, you should always, 1) stay over
on a Saturday night, 2) purchase the ticket at least two weeks in advance. This information
could save you as much as two-thirds on the ticket price.
Tip 2 – Shop around. After obtaining the lowest prices on the Internet, call a travel agent, then
call the airlines direct and ask for the lowest airfare to your destination.
Tip 3 – Direct flights are usually more expensive than fights that have stopover connecting
flights. You could save as much as 50% off the ticket price by obtaining airfare that has a
stopover connecting flight.
• Car Rental:
Tip 1 – You should call the different car rental companies since rates can vary. When shopping
around, ask if there are any additional charges (gas, insurance, mileage, etc.) besides the basic
rental rate.
Tip 2 – Rental car insurance can add up to be quite expensive if you are renting a car for
several weeks. Check with your automobile insurance company and see if your insurance policy
covers what the car rental insurance covers. If so, you can save money and avoid duplicating
any coverage you may already have.
• Purchasing a New Car:

Tip 1 – The first step in purchasing a new car is to select a car that has a low purchase price
combined with low financing. Second, make sure that the car gets good gas mileage and has
low maintenance upkeep. By selecting a car with all these guidelines you will save hundreds
of dollars in insurance.
Tip 2 – Shop around. Some dealerships have a larger inventory than others, which means they
are a volume dealership. Volume dealerships need to make sales quotas each month. They will
usually sell a car for $300 to $500 over factory invoice.
Tip 3 – Terms to remember. Car dealerships usually have specific terms that you should learn
when negotiating a purchase of a new car. Here are some of the terms to remember:
• Invoice Price is the manufacturer’s initial charge to the dealership. This price is set high
from the manufacturer to the dealership because the manufacturer offers rebates,
allowances, discounts, and incentive awards. Also the invoice price includes
destination and delivery from the manufacturer to the dealership. Note: Since
destination and delivery is already added, make sure that the dealership doesn’t add it
again to the sales contract.
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• Base Price is the cost of the car without manufacturer or dealership options. Base price
will include all standard equipment and warranty from the manufacturer. This base
price information is printed on the Monroney sticker.
• Monroney Sticker Price (MSRP) will show the base price, installed options from the
manufacturer, manufacturer’s suggested retail price, manufacturer’s transportation
charge, and the gas mileage per gallon. This Monroney Sticker Price is required by
federal law to be stuck to the car window and can only be removed by the purchaser.
• Dealer Sticker Price is another sticker in addition to the Monroney Sticker Price, which
outlines any options installed by the dealership, dealership preparation, undercoating,
and lastly, the dealership markup (profit).
Tip 4 – Financing. We live in a world where dealerships and banks unite and make it easy to
purchase a car the same day at the dealership. Dealerships usually have a dozen or more lenders
to offer a consumer, depending on the consumer’s credit history. The best financing usually
comes from the manufacturer directly. Other affordable financing can be obtained from credit
unions, and in some cases, your bank. When negotiating to finance a new car, you should
consider these areas: The monthly payment, the length of the loan, and the APR on the loan.
Keep in mind that the total amount you pay on the car depends on the price you negotiate, the
APR, and the length of the loan.
Tip 5 – Credit insurance. This type of insurance is not required when purchasing a car. This
insurance will usually pay off your loan in the event of death or disability. This insurance can
be very costly over time. In some cases, it may be cheaper to obtain a large ($100,000) “term
life insurance” policy. Consider the overall cost to your loan before you purchase it.
Tip 6 – Auto service contracts. A service contract is a promise to perform certain repairs or
services. Service contracts are also known as an “extended warranty.” A service contract is not
a warranty. A warranty only comes from the manufacturer and is included with the purchase of
your car. Service contracts will always cost you extra above the manufacturer’s warranty.
NOTE: Before purchasing a service contract, make sure your read it carefully and understand
what it covers in addition to the manufacturer’s warranty, how long the contract last, who
performs the repairs under the contract, and what is the policy for cancellation and refund.
Tip 7 – Trade-ins. If you have a used car to trade in, you should first negotiate the price on the
new car and then tell the salesman about your trade-in. Make sure that you research the value
of your used trade-in before entering the dealership. Check with your bank, credit union, or
local library for trade-in value.
Tip 8 – Cooling off period. This means that when you sign a contract to purchase a new
car, you are obligated to that car and you own it. Make sure that this is the car you want.
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• Purchasing a Used Car:
Tip 1 – Before making an offer on a used car, make sure to compare the asking price with the
retail price in a “Kelly Blue Book,” which can be obtained at most banks, credit unions,
libraries, or on the Internet at www.kbb.com.
Tip 2 – Always have a certified mechanic inspect the used car. Make sure that your mechanic is
knowledgeable with the make and model of the used car. Check the papers on the car, and
make sure that it is not a salvaged car.
Tip 3 – When purchasing a used car it is recommended that you purchase from a well-known
dealership that has been in business for several years and is well established in your community.
Dealerships must disclose warranties, if any, as well as problems whereas a private party may not.
Tip 4 – Warranty protection. When shopping for a used car, make sure that you review the
Buyer’s Guide sticker posted on the car’s side window. Federal Trade Commission (FTC)
requires that all dealerships selling used cars must post this sticker. This sticker will outline if
there is a service contract available or a warranty. Here are the different warranty options for
you to look for:
• Warranty. If the manufacturer’s warranty is still in effect on that used car, the
dealership may have you pay a fee to obtain the coverage, making it a service contract.
If the dealership absorbs the cost of the manufacturer’s fee, the coverage is considered a
warranty. This is what you want.
• Implied Warranties Only. Implied warranties are unwritten and based on the principal
that the dealership stands behind the car. Under a “warranty of merchantability,” the
dealership promises the car will do what it is supposed to do. For example, a car must run.
If the car doesn’t run, implied warranty law says that the dealership must fix it
(unless it is sold as is). All used cars are usually covered by implied warranties under
state law.
• As Is – No Warranty. These cars are sold as is whether they run or not. If it breaks
down, you must pay for all the repairs, not the dealership.
NOTE: It is highly recommended that you purchase a dealer service contract within 90
days of buying the used car. This will give you some additional rights under state law
implied warranties. Most states prohibit “as is” sales on most or all used cars. Check
with your local state consumer protection office or attorney general for information
about state laws on used cars.
• Auto Leasing:
Tip 1 – Most consumers lease cars because of the low monthly payment. Leasing is not always
the best way to pay for a car. If you drive a lot, either locally or long distance, a lease is not for
you. Leasing is good for people that drive short distances locally.
Tip 2 – Leasing a car can be very complicated. Here is an inside view on costs associated with
vehicle leasing.
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• The beginning of a lease. At the beginning of a lease, you may have to pay the dealer
in advance your first monthly payment, a refundable security deposit, and, in some
cases, your last monthly payment. In addition, you will pay other fees such as licensing,
registration, title, a capitalized cost reduction (know as a down payment), an acquisition
fee, freight or destination charges, and state or local taxes. The beginning cost in a lease
could add up to thousands of dollars.
• During the lease. Once you sign the lease contract, you will be responsible to make the
monthly payments and any additional sales or personal property taxes that were not included
in your monthly payment. In addition to your monthly payment, you will have to pay
insurance premiums, ongoing maintenance costs, inspection costs, any traffic tickets, and
any fees for late payments. If you turn in your lease before it is up, you will pay a large early
termination fee. This fee could be thousands of dollars.
• The end of the lease. Assuming that you have made all the required monthly payments,
you may have to pay additional costs when turning in your car, a disposition fee, and
charges for excess miles and excess wear and tear. The other option to eliminating these
fees and charges is to purchase the leased vehicle out right.
Tip 3 – Your rights under vehicle leasing. When you lease a vehicle, you have certain rights.
• You can use the vehicle for a number of months and drive it a number of miles
• You can turn in the vehicle at the end of the lease and walk away. You may owe some
end-of-lease fees and charges, depending on the miles
• You have the right to purchase the vehicle during and at the end of the lease
• You have the right to any warranties, recalls, or other services that apply to the vehicle
Tip 4 – You should understand the difference between leasing a car and buying a car. You can
contact the Federal Reserve System, Mail Stop 127, Washington, DC 20551 for a brochure
entitled: Keys to Vehicle Leasing – A Consumer Guide. You can also go to their website at
www.federalreserve.gov/pubs/leasing for information.
• Gasoline:
Tip 1 – Most gas stations have three octane grades to choose from; Regular (87 octane), mid-grade
(89 octane), and premium (92 to 93 octane). Choose the right octane for your car. Check your
owner’s manual to see what octane your engine needs. Don’t buy higher octane gas if your car
doesn’t require it. Higher octane, if not needed, offers absolutely no benefit. Higher octane can
cost 15 to 20 cents per gallon more than regular octane. You could save hundreds of dollars a year
by reading your owner’s manual and using the recommended octane.
Tip 2 – You should shop around and compare the different prices of gasoline at different stations.
You could save hundreds of dollars a year by shopping around, using and paying the self-serve
prices instead of full-serve prices.
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Tip 3 – Keeping your vehicle’s engine tuned up every 3,000 miles and keeping your tires
balanced and inflated with the proper pressure can improve fuel efficiency, which could
save you up to $100 a year on gas.
• Car Repairs:
Tip 1 – Each year consumers lose billions of dollars in unneeded or poorly done car repairs.
To save money on car repairs, you should shop around and ask for referrals to locate an honest
and skilled auto repair company that specializes in your make and model. Make sure that the
car repair company you choose meets these criteria:
• Make sure they are certified and well established in your community
• Has done good work for someone you know. Don’t be afraid to ask for referrals
• Gives you different repair options and cost
2. TRAVEL
• Before you leave:
Tip 1 – Whether you plan to take a road trip or fly to a destination, you need to prepare a basic
checklist to safeguard your home while away and to make your trip go smoothly. Here is a basic
list to follow:
• Stop your mail. Have your post office hold your mail until you come home from your trip.
• Stop your newspaper delivery until you come home.
• Turn your water heater down to the lowest settings.
• Install light timers inside your home to automatically turn lights on and off. This will
give a presence that someone is home.
• Do not change your answering machine message. You do not want to alert people that
you are out of town.
• Road trip: You should plan out your trip route on a map, make sure your automobile as
been taken in for service; make sure to pack a first aid kit, emergency road kit, cell
phone and charger; food, water and supplies.
• Airline flight: Make sure to carry on the plane some basic items such as aspirin, upset
stomach medicine, diarrhea medicine, cold medicine, bottled water, reading material,
and snacks.
• If traveling with children, it might be a good idea to bring hand electronic games, CD
players, laptop computer, etc., to keep the children busy.
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• While on your trip:

Tip 1 – While on your trip, you should have the following items with you at all times, in your
wallet, purse, fanny-pack, or backpack:
• Driver’s license
• Health and auto insurance cards
• A major credit card (Visa or MasterCard)
• Traveler’s checks and receipts
• Airline, cruise, or train tickets
• Travel itinerary with confirmation number, addresses, and phone number of where
you’ll be staying
• Travel brochures and maps
• Eyeglass prescription
• Medications and prescriptions
• Name and phone number of contact person in case of emergency
3. INSURANCE
• Auto Insurance:
Tip 1 – Purchasing auto insurance from a licensed low-price insurer could save you hundreds
of dollars a year. We recommend that you call your state insurance department for a publication
list showing the different auto insurance rates for the different auto insurance companies. Once
you receive the list, you should call at least five of the lowest-price licensed companies to see what
they would charge for the same coverage.
Tip 2 – If you have several cars, a trailer or a motor home, it would be wise to combine all vehicles
with one auto insurance carrier. By combining vehicles, you will get a multi-vehicle discount, which
could save you hundreds of dollars a year. In addition, you can even reduce your multi-vehicle
discount premium by combining your vehicles with a homeowner policy and life insurance policy
with the same carrier. Companies like State Farm, All State, and Farmers Insurance are well-known
insurance companies that can help you.
Tip 3 – To keep your auto insurance cost down, we recommend that you purchase an inexpensive
vehicle rather than an expensive, high-performance car. High-performance cars are fun to drive, but
they are costly in gas, repairs, and the insurance premiums can be two to three times higher than an
inexpensive car.
Tip 4 – When purchasing a new or used vehicle, you could save five to ten percent off your auto
insurance premium by installing an approved alarm system.
Tip 5 – Another way to save hundreds of dollars a year is to call your auto insurance agent or
insurance carrier and tell them that you want to increase your deductibles on collision and
comprehensive coverages to $500 or, if you have an old car, drop these coverages altogether.
Tip 6 – Maintaining a good driving record could reduce your auto insurance premium. If you
have traffic tickets, you could get a lower insurance rate by maintaining a clean record for 36 months
from the date of your traffic ticket.
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Tip 7 – Teenage drivers. If your teenage child maintains a good academic record, you could
qualify for a discount. Also, you can add your teenage driver to your policy as an occasional
driver of your least expensive car. Make sure that your teenage driver only drives that car.
Tip 8 – Important note: Don’t ever drop your old coverage until your new policy is in effect.
Speak to your auto agent or insurance carrier.
• Homeowner/Rental Insurance:
Tip 1 – Purchasing homeowner insurance from a licensed low-price insurer could save you
hundreds of dollars a year and up to $50 a year on rental insurance. We recommend that you
call your state insurance department for a publication list showing the different licensed insurance
companies. Once you receive the list, you should call at least four of the lowest-price licensed
companies to see what they would charge for the same coverage.
Tip 2 – When purchasing either homeowners or rental insurance, make sure to purchase
enough insurance to replace the house and its contents. Replacement on the house means
rebuilding it to its current condition.
Tip 3 – Important note: Don’t ever drop your old coverage until your new policy is in effect.
Speak to your agent or insurance carrier.
• Life Insurance:
Tip 1 – If you are looking to protect yourself and your home and not interested in savings and
investments, you should buy “level term insurance,” 5, 10, 15, or 20-year level. Any licensed
insurance agent can sell you this product. Make sure that you ask the agent to present at least
five different life insurance carriers, their rates and coverage terms.
Tip 2 – If you own or plan to purchase a whole life, universal life or other cash value insurance
policy, we recommend that you keep the policy in force for at least 15 years. If you terminate
these cash value insurance policies after only a few years your life insurance cost could double.
4. BANKING & CREDIT

• Checking Accounts:
Tip 1 – Selecting the right checking account with low or no minimum balance requirements
can save you more than $100 a year in bank fees. When comparing banks, make sure to ask for
a list of monthly and yearly charges on their checking accounts.
Tip 2 – Direct deposit. Most banks and credit unions will lower or waive checking account fees
if you have your paychecks deposited directly into your checking account by your employer. This
method is convenient and allows you to have immediate access to your money, a great plus for you.
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• Savings and Investment Accounts:

Tip 1 – There are several different accounts with little or no risk available to you for saving
money: Regular savings, money market savings, certificate of deposit (CDs), treasury bills, or
notes and bonds. These different accounts are available at most banks and credit unions.
Tip 2 – The most important question to ask your bank or credit union is, “Are my savings and
investment accounts insured by the federal government (FDIC or NCUA)?” Some investment
accounts are not insured, such as mutual funds and annuities. Be smart and protect your money.
Tip 3 – Within a bank or credit union, certificate of deposits (CDs) and treasury bills or notes
will give you the highest return on your money with little or no risk.
Tip 4 – Before depositing your hard-earned money into a savings or investment account with a
bank or credit union, compare interest rates and bank fees on those accounts. Some accounts
over time can drain your account with high fees and charges ultimately affecting your interest
earning.
• Credit Cards:
Tip 1 – If you can afford to pay off your entire credit card balance each month, you could save
hundreds, even thousands, of dollars in interest charges.
Tip 2 – If you carry a balance on your credit cards, as a rule of thumb to help you power down
your balance, you should take the minimum payment called for on your statement and add it to
the current finance charge and make that your “new” minimum payment. By doing so, you are
paying the creditor their finance charge (satisfying their profit) and the rest will be applied to
the principal balance. This will get you out of debt quickly.
Tip 3 – If you carry a balance on your credit cards, it might be wise to balance transfer your
high interest cards onto a low interest card. This could save you thousands of dollars in interest
charges. For a list of low interest credit cards, you can contact RAM Research Corp. (for a small
fee) at 1-800-344-7714 or you can access their website at www.cardweb.com/findacard.
• Auto Loans:
Tip 1 – If you have significant savings earning a low interest rate, consider making a large down
payment or even paying for the car in cash. This could save you several thousands of dollars in
finance charges.
Tip 2 – Shopping for an auto loan could save you hundreds of dollars in finance charges. You
should contact several banks, credit unions and the auto manufacturer’s own finance company.
• First Mortgage Loans:
Tip 1 – By securing a shorter-term mortgage, you could save tens of thousands of dollars in
interest charges. Remember, however, shorter-term mortgage will have a higher monthly
payment than a longer-term mortgage. For example: If you have a $100,000 mortgage loan
with an eight percent fixed annual interest rate, you will save around $90,000 in
interest on a 15-year mortgage loan than on a 30-year mortgage loan. If you can afford it, a
shorter-term mortgage is the better choice.
15
Tip 2 – You should shop around for the lowest interest rate mortgage loan with the fewest
points being added. For example: If you lower a 15-year fixed $100,000 mortgage loan to eight
percent interest, you could save more than $5,000 in interest charges. On this same $100,000
mortgage loan, if you pay two points instead of three points, you could save an additional $1,000.
Just by shopping around you could save thousands in interest charges and points.
Tip 3 – When shopping around for a low interest rate mortgage, you should call at least five
established mortgage lenders for rates, points, and fees. Take this information and ask your
accountant or CPA to compute the different mortgage options and their tax implications to you.
Tip 4 – If you are considering an adjustable rate mortgage loan, you need to be aware that the
interest rate can vary greatly over the life of the loan, causing your monthly payment to increase
or decrease by hundreds of dollars.
• Mortgage Refinancing:
Tip 1 – You should only consider refinancing your first mortgage if you can lock in a new
mortgage that is at least one percentage point lower than your existing mortgage rate. Speak to
your accountant or CPA for advice.
• Home Equity Loans:
Tip 1 – Home equity loans reduce your equity that you have built up in your home. If you can’t
afford to pay the home equity loan, you could lose your home. Don’t ever risk your family
home. A family home is your foundation in life. It’s the American dream to own a home. Don’t
lose that dream. Think before you act.
Tip 2 – If you have decided that a home equity loan is best for you then you, should call at least
four banks and other lenders and obtain their rates, points, closing costs, and other fees
associated with an equity loan.
5. HOUSING:
• Home Purchase:
Tip 1 – Purchasing a home will be the biggest decision in your financial life. You should seek
advice and help from a qualified mortgage broker who works for you, not the seller. You should
ask the broker if they are showing you a property that they have listed. If so, you should consider
another broker, avoiding any conflict of interest.
Tip 2 – If you are purchasing a pre-owned home, you should hire a certified home inspector
or inspection company to examine the property before you consider making an offer on it.
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• Renting:
Tip 1 – When locating an apartment, condo, or house to rent, you should not only look in the
newspaper classified ads, but you should drive through areas where you would like to live as well
as ask for referrals from friends and family.
Tip 2 – When signing a lease agreement to rent an apartment, condo, or house, make sure that
you plan to live there for at least six months to a year. If you want a better monthly payment
rate, you will most likely have to sign a six-month or a one-year lease. If you only want a
month-to-month rental agreement, then you should plan on paying a higher monthly payment.
• Home Improvement:
Tip 1 – If you are considering any type of home improvements to your residence, you should
only hire well-established licensed contractors that specialize in that home improvement. You
could save thousands of dollars by using several contractors instead of one. Make sure that you
obtain a written and signed estimate from each contractor and a written date of job completion.
Tip 2 – Never sign a contract that requires payment in full or pay a contractor in full before the
work is done. You should work out a payment schedule as work is completed. Also, save the
last payment until the job is complete to your satisfaction.
6. UTILITIES:
• Electricity:
Tip 1 – You can save hundreds of dollars a year by replacing or purchasing new appliances, air
conditioners and furnaces that are energy efficient. Energy efficiency information is usually
located on the Energy Guide label on the major appliance. This label is required by federal law.
Tip 2 – Most utility companies have “load management” and “off-hour rate” programs that you
can enroll in. These programs through your utility company could save you up to $100 a year in
costs. Contact your electricity company for more information.
• Home Heating:
Tip 1 – You can request an energy audit on your home heating and air conditioning. This audit
could identify ways for you to save hundreds of dollars a year. Most audits are free. Call your
local electric company for more information. If your electric company does not perform audits,
ask them for a company that does.
Tip 2 – You should check your attic, attic stairway, attached garage walls, and basement to
make sure that your home is properly insulated to the Department of Energy recommended
levels in your area. Call your utility company and see if they can help you determine if your
home meets the recommended levels.
Tip 3 – You should consider wrapping your hot water heater with an insulating jacket.
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Tip 4 – Call your utility company and ask them if they can inspect your heat pump, furnace, or
boiler to make sure it is working properly.
Tip 5 – Call a heating and air conditioning company to make sure that your air ducts are
cleaned, sealed, and insulated. By doing this, you will ensure that the airflow distribution
system serving your heating equipment is operating at its peak for efficiency.
Tip 6 – On forced air furnaces, make sure to clean them or replace them if needed.
• Winterizing Your Home:
Tip 1 – On windows and doors, make sure to have them sealed with caulking and weather
stripping. Air leaks can affect your efficiency, allowing heat to escape, which could increase
your heating bill.
Tip 2 – Check your chimney. If you haven’t used your fireplace in a while, it’s a good idea to
have it checked for animals, debris, and leaves. You should consider installing a screen over
your chimney opening.
Tip 3 – Clean your gutters and ridge vents. If gutters are clogged, rainwater will back up.
If water backs up and the temperature drops below freezing the water will freeze and may
cause the gutters to expand and crack.
Tip 4 – Check the batteries in your smoke alarm detectors. Make sure that they are in working
order. If your smoke alarm beeps, you may need to change the battery. Make sure that the light on
your smoke alarm is on. Most smoke alarms have a button that you can push to test the alarm.
• Local Telephone Service:
Tip 1 – Call your local phone company and ask them which phone plan can save you the most
money, a flat rate or measured service plan.
Tip 2 – If possible, you should always purchase your home telephones instead of leasing them.
Tip 3 – Check your phone bill each month for out-of-the-ordinary calls and phone call
minutes. Also, check your bill and see what service options are being charged to your account.
In most cases there will be options that you can eliminate. By eliminating unneeded options,
you could save $40 or more a year.
• Long Distance Telephone Service:
Tip 1 – Try to make your long distance calls on a weekday rather then during evenings, or on
weekends. The cost should be less for weekday calls.
Tip 2 – You should consider subscribing to a calling plan if you consistently make long distance
calls. Try to shop around for the cheapest plan for the long distance calls you make.
Tip 3 – Long distance calls can cost you an extra $6.00 if you use an operator to assist you.
When possible, dial your long distance calls direct without an operator.
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7. SHOPPING:
• Food:
Tip 1 – Whenever possible, you should shop at lower-priced food stores instead of convenience
stores. Convenience stores usually charge higher prices.
Tip 2 – When shopping, always shop by a list, not by impulse. When you stick to list, you can
control your budgeting and spending. A list will help you spend less. If possible, try to avoid
shopping with children. Children want snacks and toys, and this could increase your spending.
Tip 3 – A smart shopper will use coupons when possible and buy generic brands instead of
brand names. Comparing prices can save you hundreds of dollars each year. For information on
purchasing low cost savings coupons, go to www.onlinecoupons.com. You can also contact
them by mail at: Online Coupons.com, Inc., P.O. 7031 Middlebrook Pike, Knoxville,
TN 37909.
• Prescription Drugs:
Tip 1 – Whenever possible, you should purchase generic drugs rather than brand name drugs.
You should seek the advice of the pharmacist on the different drugs available for your condition.
Tip 2 – If you are taking medication over a long period of time you could save hundreds of
dollars by purchasing through mail order from a reputable company in the United States.
Check with your local Food and Drug Administration (FDA) office or visit the FDA website at
www.fda.gov for a listing of mail order drug companies.
Tip 3 – Be careful if you are purchasing prescription drugs from other countries through mail
order or the Internet. The Food and Drug Administration (FDA) advises against purchasing
medications from websites or mail order houses located outside the United States. The quality
of “foreign versions” of prescription drugs is often unknown. In too many cases the drugs are
counterfeits – lacking any real similarity to the approved drug. Directions for these drugs are
often inadequate and incorrect.
• Shopping from Home:
Tip 1 – Whether you’re shopping online, by telephone, mail order, or door-to-door sales, here
are some value tips to follow:
• Know who you’re dealing with. Ask where they are located. Never deal with companies
that only list a PO Box for an address and no phone number. Always check the
company out with the Better Business Bureau. If not listed, contact another company.
• Make sure that your information is protected. Only give out your personal information
if you know who’s collecting it, why and how it will be used.
• If you are purchasing a product or service, try to always pay by credit card. Credit card
payment is the best and safest way to pay. With credit card transactions, your transaction is
protected by the Fair Credit Billing Act. Be smart.
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• Make sure that you understand what you are purchasing or signing up for. Ask for a
description of their product or service in writing as well as their refund and return policy
before you pay.
• Discount Buying Clubs:
Tip 1 – If ordering anything by phone, be alert! If you are made an offer you are not interested
in, make sure that you are very clear in refusing it. If not, you may find charges on your credit
card bill.
Tip 2 – If you receive a package in the mail and you did not order it, you need to look at it and
read the information. This package may come with a free trial offer membership. If you do not
call and cancel the offer within a certain number of days, you may find yourself enrolled in a
membership program and find charges on your credit card bill.
Tip 3 – Always check your credit card statements for unauthorized charges. You may have
purchased an item over the phone several months ago and authorized them to charge your
credit card. Note: Once someone has your credit card number, it is possible for them to charge
your account in the future even if you never agreed to purchase their product or services. If
this happens, you need to call your credit card company and dispute the charge. Also,
you need to cancel that card and have the credit card company issue you another one.
8. PAYING BILLS ONLINE:

• Security:
Tip 1 – Make sure that the online company you choose to use for paying your bills protects
your privacy and uses technology that gives you the most online security for safeguarding your
financial information. Here are some tips to follow:
• Make sure that you have a valid password that can only allow you to access your
account information.
• Make sure that your password is encrypted, making it unreadable to anyone else.
• Make sure that your information is transmitted using SSL, a standard secure protocol
used to transmit data securely over the Internet.
• Make sure that your information is stored with a company that has their servers
protected by network firewalls and monitored by state of the art network security
systems.
• Companies like Microsoft have all these features above in place for consumers who
wish to pay their bills online. You can check this service out at
www.moneycentral.msn.com. Also, most major banks are set up for
banking online. Check with your local bank for information.
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Savings Strategies
and Planning Goals
• Ten strategies to save money:
1. Start Saving. Experts suggest that you start small by saving 10% to 15% of your net income each
month. Establish a separate savings account, and get into a habit of putting small amounts of money
away each month. It is easier to save small amounts instead of a large lump sum.
2. Enroll into a 401 (k) plan at work. Try to put away a minimum of five percent of your gross
income into a 401 (k) plan each month. In many cases your employer will match up to 50 cents on
the dollar, which gives you an immediate return on your money.
3. Keep track of your ATM withdrawals. Entertainment can drain your account. It’s easy to access
money from an ATM machine. You should set up a separate entertainment account that is only
hooked up to your ATM. Over time, you will get into a habit to spend within your budget.
4. Credit cards. Interest on credit cards is not deductible. Always try to pay more than the minimum
payment each month, and try not to be late with your payment. Late fees can increase your balance.
In addition, stay within your credit limit. If not, you could be charged an over-limit fee.
5. Automatic investment plan. Speak to your local bank and see if you can arrange for your bank to
draft $25 or $50 or $100 each month from your bank account and deposit it into an investment fund
account. You work for your money. It’s time to have your money work for you.
6. Mortgage payments. If possible, try to pay extra money each month to your principal balance or
make an extra mortgage payment within the year. This will cut years off your payoff time and save
you thousands in interest over time.
7. Car loans. Interest on car loans in most cases is not deductible. You should, if possible, make larger
payments each month to pay off the loan. If you have equity in your home, it may be an option to
take a loan against your equity and pay off the car loan. In this case, the interest may be deductible
on your home equity loan.
8. Open an IRA. Setting up a Roth IRA may be one of your best options. In a Roth IRA, you
contribute after-tax dollars and when you reach retirement you can withdraw the money tax-free.
You may be able to contribute to a Roth IRA even if you have a company 401 (k) plan. Many
people set up a Roth IRA when they are maxed out in contributing to their 401 (k) plan.
9. Term life insurance. If you are paying for annual renewable term life insurance, you should
consider changing to a level (10, 15, or 20 years) term life insurance policy. Shop around. Call a local
insurance broker, not an agent, and ask them to give you a comparison of companies and their rates.
10. Money management. It is important to know where you spend your money each month.
People who track their money usually spend less and save more. Keeping a budget with target
spending amounts will keep you in the black and from having financial problems. Financial
problems are one of the leading causes of divorce in the United States.
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• Nine steps to help you meet your goals:
1. Step 1 – Use a computer to get organized. You should consider purchasing a financial software
package like “Quicken” or “Quickbooks” to organize and list all of your monthly bills, home furnish-
ings, assets, bank accounts, and investments. This program also allows you to print checks from your
computer and printer. You can purchase this program at any computer or office supply store.
2. Step 2 – Prepare a livable household budget. Budgeting is the key to living a life free of debt. Their
are many budgeting programs on the market that you can use, such as Quicken to help you get your
budget under control. Quicken can be purchased at any office supply store. This program allows you to
track monthly expenses as well as control spending.
3. Step 3 – Prepare for emergencies. You need to set aside a minimum of two months’ worth of
income in a savings account. Emergencies can pop up when you least expect it. If possible, you should set
aside as much as four months’ worth of income in case you lose your job.
4. Step 4 – Review your will and keep it updated. If you do not have a will, it’s critical that you have
one prepared, particularly if you have children. It’s important to review your will each year and update,
especially if you have had a child since you last reviewed your will. You should contact an attorney for
information on wills, or you can contact pre-paid legal companies like Pre-paid Legal and LawStar.com.
5. Step 5 – Take control of your credit cards. If you are making minimum payments each month,
it could take you over 20 years to get out of debt. Consider speaking to a credit counseling agency for
consolidating credit cards into one payment as well as setting up a repayment plan with lower payments
and interest with your creditors. Most consumers enrolled in a credit counseling program can be out of
debt within 48 to 60 months.
6. Step 6 – Establish savings. Goals help you focus on priorities and offer a vision of what you really
want out of life. Whether it s your retirement, a house, a car, or that vacation, you need to start preparing
today. (As an example, if you’re 35, you’ll need to start with $50,000 in savings and consistently put away
$11,000 a year for 20 years to have $1 million dollars when you are 55 years old). It’s never too late to start.
You may want to seek the advise of a financial advisor company such as Morgan Stanley Dean Witter,
Merrill Lynch, Paine Weber, etc., for information on financial planning.
7. Step 7 – Set up an investment account. Where to start? The place to start is with your employer.
Make sure that you enroll in the company’s 401 (k) retirement plan. Second, you may want to open a
managed account with a financial advisor company such as Morgan Stanley Dean Witter, Merrill Lynch,
Paine Weber, etc. These companies will help you create an investment portfolio, stocks, bonds, mutual
funds, etc., to fit your investment needs.
8. Step 8 – Build your net worth and track your investments. Retirement always comes sooner
than you plan. Some experts believe that Social Security will be bankrupt by the year 2015. If this is true,
you need to take control of building your net worth and making sure that you spend your money wisely
on items that will build net worth; Real estate, stocks, bonds, CD’s, annuities, etc. Buying cars, water sport
toys, jewelry, etc., does not build true net worth. These items are luxuries that usually depreciate in value.
9. Step 9 – Protect your family, home and assets with insurance. Life insurance is designed to pro-
tect what you have worked so hard in your life to build, which is true net worth. It’s important that your
family maintains your true net worth in the event of death. Most people today don’t have enough life
insurance to fully protect their true net worth. For example, if your annual income is $60,000, you should
purchase 10 times your income of insurance, which would be $600,000 of life insurance. The younger
you are, the less expensive it will be.
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Tax Planning Tips

• Ten strategies to cut your tax bill:
1. Mortgage interest and property taxes. You can deduct the mortgage interest (not the principal) that
you pay on a loan secured by your primary residence or a second home. To claim the deduction, you
must be obligated to pay the debt and you must actually make the payments.
2. Charitable donations. You can deduct any cash or noncash contributions you make to a qualified
nonprofit organization.
3. Medical expenses and health savings accounts. You can deduct the amount of your medical
and dental expenses that exceeds 7.5% of your adjusted gross income. Eligible expenses include both
health insurance premiums and out-of-pocket expenses not covered by insurance for both you and your
dependents.
4. Child and dependent care. If you have to pay someone to care for your child (under 13) or a
dependent needing care so that you can work or look for work, you may be able to claim a tax credit for
those expenses. The credit is a percentage of your eligible work-related child or dependent care expenses,
ranging from 20% to 35%, depending on your income.
5. State and local taxes. Under the American Jobs Creation Act (AJCA) of 2004, taxpayers have been
given a choice when it comes to deducting state and local taxes. For 2004 and 2005, you can choose to
deduct either your state and local income taxes or your state and local general sales and use taxes, but not
both -- an option taxpayers haven’t had since 1986.
6. IRA and 401(k) contributions. If your employer offers a 401(k), it pays to maximize your contributions,
especially if your employer matches them. In 2004, you can contribute up to $13,000 to your 401(k); in
2005, the maximum increases to $14,000. If you are 50 or older, you can contribute an extra $3,000. For
IRAs, you can contribute $3,000 in 2004 and $4,000 in 2005, and deduct that amount from your income.
If you are 50 or older, you can contribute an extra $500 each year.
7. Student loan interest. You can deduct up to $2,500 in student loan interest payment per year, for
the lifetime of the loan. There are income limits -- you can’t take this deduction if you make more than
$65,000 as a single person or $130,000 as a married couple.
8. Education expenses. You can currently deduct $4,000 for tuition-related expenses every year, or you
may qualify for the Hope and Lifetime Learning credits, which are also for education.
In addition, you can now contribute up to $2,000 to a Coverdell education savings account (formerly
called an education IRA) each year. (The amount isn’t deductible, but distributions from the account for
payment of tuition are tax-free.)
9. Job expenses. You can deduct education and training costs for your job if your employer doesn’t
reimburse you for them (and if the education is for your current job, not to get a better job
later). Job-hunting expenses, including mileage, are also deductible. If you’re a teacher, don’t forget to
include teaching-related expenses for a small tax break.
10. Home office tax deduction. If you use a portion of your home exclusively for business purposes,
you may be able to deduct home costs related to that portion, such as a percentage of your insurance
and repair costs, your mortgage or rent, and depreciation.
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How to Check
out a Company
• Locate a Better Business Bureau (BBB) near you:
Tip 1 – The first step to checking out a business is to locate a BBB in your area. You can go
online at www.bbb.org and there are several ways to search for a local BBB; By city, by zip code,
or by State or Province.
• How to check out a business with the BBB near you:
Tip 1 – You can go online at www.bbb.org and there are several ways to search for a business;
By name, city and state, by phone number, or by web address. To increase the chance of finding
the companies you are looking for, just enter a part of the company’s name.
• How to file a complaint against a business with the BBB:
Tip 1 – You can go online at www.bbb.org and file a complaint. The BBB does not take sides in
a dispute. There are several ways to search for a business; By name, city and state, by phone
number, or by web address. To increase the chance of finding the company you are looking for,
just enter a part of the company’s name.
Valuable Books to Read

• Building Your Nest Egg with Your 401(k): By Lynn Brenner
• Personal Finance for Dummies: By Eric Tyson
• The Truth About Money: By Ric Edelman
• The Credit Jungle: By Robert Dietz, Michael Langer
• Stand Up to the IRS: By Frederick W. Daily, Robin Leonard
• Money Troubles: By Robin Leonard
• You Don’t Need a Million to Retire Well: By Ralph E. Warner
• How to Buy Mutual Funds the Smart Way: By Stephen Littauer
• How to Buy Stocks the Smart Way: By Stephen Littauer
• Estate Planning Made East: By David T. Phillips, Bill Wolfkiel
• Saving on a Shoestring: By Barbara O’Neill
• Stock Market 101: By Clark Holloway
• The Living Trust Revolution: By Robert A. Esperti, Renno L. Peterson
• The Living Trust Workbook: By Robert A. Esperti, Renno L. Peterson
• Protect Your Estate: By Robert A. Esperti, Renno L. Peterson
• The Investing Kit: By Bay Gruber
• How to Buy Bonds the Smart Way: By Stephen Littauer
Personal Message: The authors of MakingCents have listed these useful guidebooks for
consumers who want to take control of their financial life and plan for the future. These books can be purchased
online at www.moneycentral.msn.com.
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SECTION 3
Information About
Credit Cards
SECTION 3 – Information about Credit Cards
WHAT IS A CREDIT CARD?

A credit card defines life in our society today. This small, pocket size, plastic object allows people to purchase
almost anything for sale: Cars, boats, jewelry, computers, clothes, groceries, etc.
Millions of people in our society today carry some type of credit card. Credit cards make it convenient in our
everyday lives. Everywhere you go, nationally or internationally, someone is using a credit card. Each day
thousands of people are receiving pre-approved credit card applications in their mailbox. These pre-approved
credit card offers usually have a low introductory rate (3.9%, 5.9%, 8.9% etc.) for a limited time (six months).
The biggest problem we face with credit cards is that they are accepted almost everywhere and they are painless
to use...not like paying cash or writing a check. We have been brain washed by credit card issuers to “Buy now
and pay later.” This theory has made millions of people slaves to these credit card issuers.
Each time you take a “cash advance” on your credit card or “purchase an item with it,” you’re actually signing a
contract between you and the credit card issuer for a loan, which consists of repayment of that loan plus interest.
Credit cards are different from traditional bank loans. Bank loans issue money in lump sum amounts, but credit
cards give you the flexibility at any time or anywhere to borrow money up to a specified credit limit. For
example, if your credit card carries a credit limit of $2,500, you can purchase an item for $600 one week and
purchase another item for $1,000 next week and so on, as long as you make the minimum payments called for
on your creditor’s statement. In addition to making monthly payments on time, you need to watch that your
spending does not exceed your credit limit.
Credit cards are a privilege, and consumers should remember that they are responsible for repayment to credit card
issuers, not someone else. The credit card industry is big business and more and more financial companies are
trying to get their share of the pie. Auto manufacturers, like General Motors (GM) and Ford Motors, are making
it very attractive for consumers to apply bonus dollars to the purchase of a new vehicle each time they charge on
their credit card. Gimmicks, perks, and bonus dollars have become standard among credit card issuers today.
On the next few pages we’ll review the different type of credit cards and how they work:
• Bank credit cards
• Department store credit cards
• Oil company credit cards
• Travel & entertainment cards
• ATM credit cards
• Secured credit cards
1. BANK CREDIT CARDS:

Bank credit cards are the most commonly used by consumers worldwide. These credit cards are issued by banks
and credit unions. These credit cards are issued under these brand trademark names: MasterCard, Visa,
Discover, and American Express. These brand trademark names are actually financial companies that provide
services to banks, credit unions, and other financial companies that offer credit cards to consumers.
Bank credit cards are considered a revolving open line of credit account that doesn’t have to be repaid in 30 days.
These accounts allow you to carry a balance each month, while borrowing additional money (credit), at the
same time you’re making minimum payments back to the credit card issuer on your revolving balance.
26
Bank credit cards are considered a “universal” card and are accepted at many places worldwide, such as retail
stores, restaurants, hotels, gift shops, car rental shops, etc. Important note: If you use your bank credit card and
pay your balance off within the grace period term of the credit card issuer, most of these issuers will waive the
interest (finance charges) on the balance owed, but if you carry a balance past the grace period term, the credit
card issuer will charge you interest on the balance that you carry each month. Cash advances on your bank credit
card have no grace period. Term and interest will accumulate on the amount of cash advance that you charged
against your bank credit card.
Bank credit card issuers in America today are pretty much free to set their own standards for interest
(finance charges), line of credit terms, credit limits, special introductory rates and bonus perks. All bank credit
cards are different in their standards. Each credit card issuer has their own guidelines for approving or
declining credit applications.
One thing is true about credit card issuers – they all make profit on you by charging interest on revolving
balances that you carry on your bank credit card and some make additional profit on charging you late fees,
over-limit fees, and annual membership fees. In addition, most credit card issuers charge a small commission
percentage (1% to 2%) to merchants who wish to accept bank credit cards from cardholders. Bank credit cards
are big business in America today!
The good news is that most bank credit cards are considered “unsecured accounts,” which means that you don’t
have to put up collateral, such as real property, to obtain one.
As we mentioned earlier, bank credit cards are universal and can be issued to anyone, regardless of race, creed,
or income level. Bank credit card interest rates may average anywhere from 5.9% (introductory rate) to
23.99%, but the average is close to 18.99%.
2. DEPARTMENT STORE CREDIT CARDS:

Department store credit cards are considered revolving charge accounts that allow you to purchase many items
on credit (clothes, cosmetics, etc.). These credit cards give you the complete flexibility to make monthly
installment payments on the balance that you carry. In addition, you have the ability to add new purchases to
your revolving account, while you make monthly payments, as long as you stay within your granted credit limit
that the store has issued.
Department store credit cards make it easy for consumers to shop and purchase items within their store. These
cards are easy to apply for, and almost anyone can obtain one. Reality is, if a department store can get you to
apply for their own “store credit card,” which can be used only in their store, then they have captured your
business now and probably in the near future. Department stores are offering gimmicks, perks and other offers to
take business from each other.
Interest rates for department store credit cards are generally much higher than bank credit cards. These
department store credit cards can range from 19% to 25% interest. Department store credit cards are a
privilege, and you will pay dearly for the use of them.
3. OIL COMPANY CREDIT CARDS:

Of almost all credit cards, oil company credit cards are by far the easiest to obtain. These oil company credit
cards are not considered revolving accounts. They usually must be paid in full within 30 days. Most consumers
depend on these oil company credit cards in everyday life to purchase gasoline for their automobiles and other
items that use gasoline to power. In some circumstances, oil companies will extend a revolving account to large
companies or corporations.
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Oil company credit cards will vary from each oil company and can only be used at that specific oil company.
These oil company credit cards are not universal and are limited only to purchasing gasoline and, in some cases,
tires, repair work, batteries, and other items offered at that oil company gas station. Most oil companies will
cancel your credit card privilege if your account goes past 60 to 90 days without payment unless an arrangement
is made between you and the oil company issuer.
Oil company gas stations are big business. Oil companies are now making it more convenient for the consumer,
not only to purchase gasoline, but numerous other items, as they now act as mini markets as well. In addition
to food and other items, most oil companies are now capturing additional business by offering a drive-through car
wash. Gasoline, food, and a car wash - what’s next?
4. TRAVEL & ENTERTAINMENT CREDIT CARDS:

Travel & entertainment credit cards are not revolving charge accounts. They do not allow you to carry a
balance each month. They require payment in full within 30 days. Examples of these are: American Express,
Diner’s Club, and Carte Blanche. These are the three largest and most well-known travel & entertainment
credit cards on the market today.
Travel & entertainment credit cards are usually used by businesses for travel purposes. These credit cards are a
great source for tracking business expenses. These credit cards offer a grace period with no interest. You might ask
“How do these travel & entertainment credit card issuers make money?” These credit card issuers make
their money by charging you annual membership fees.
The danger that consumers face with these travel & entertainment credit cards is that there are no specified
credit limits and purchasing power is unlimited. However, most travel & entertainment credit card issuers, in
practice, will monitor large purchases. Consumers can easily get into financial trouble because it’s all too easy
for them to spend more than they earn. Consumers need to remember that travel & entertainment credit cards
don’t carry the same theory as bank credit cards: Buy now, pay later!
Travel & entertainment credit cards are definitely a privilege to possess and should not be abused. These credit
cards are accepted worldwide just like bank credit cards.
5. ATM DEBIT CARDS:

These cards are called automated teller machine (ATM) cards and are not bank credit cards. However, ATM
cards are issued by your bank. These cards allow you to obtain cash (increments of $20.00) from your bank
almost 24 hours a day. These cards also allow you to obtain cash from other banks, as long as they are compatible
with your bank. Important Note: If you use your ATM card at other banks to obtain cash, please be aware that
the bank may charge you a transaction fee ($1.00 to $2.00) for the privilege of taking cash out of their bank.
Whenever possible, you should always use your ATM card at your bank to avoid these transaction fees.
ATM cards work just like cash. We like to refer to them as plastic money. Each time you use your ATM card
you’re really using your own cash that is in your checking or savings account. As you purchase an item with
your ATM card, the bank, in return, will draft the money out of your bank account and pay the merchant from
whom you purchased the item.
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ATM cards are convenient and make our lives easier. These cards, however, will not help the consumer build
credit. These cards are accepted almost anywhere that bank credit cards are accepted: Gas stations, grocery
stores, restaurants, etc.
In many cases ATM cards are now taking the place of writing checks. ATM cards are great for merchants
because they guarantee the payment on your purchase. Merchants don’t have to second-guess whether accounts
have funds sufficient enough to cover the purchases.
6. SECURED CREDIT CARDS:

Secured credit cards are the complete opposite of unsecured credit cards. Secured credit cards are secured
accounts. They require that you deposit an amount of money (typically $300, $500 or $1,000) into a savings or
CD account at the bank that is issuing the secured credit card. In reality, you’re putting your own money into
an account as collateral against anything you purchase on that secured credit card.
Secured credit cards are risk-free from the bank’s perspective. Banks realize that if you don’t pay your agreed
payments back to the credit card issuer, that credit card issuer has the right to draft your payments against your
deposit in your savings account. Keep in mind, when you put money (deposit) as collateral for a secured credit
card, you will continue to earn interest on your money (deposit). Once you have deposited money into a
savings account as collateral, you cannot withdraw the principal or interest accumulated on your principal
without canceling your secured credit card.
You might ask “How do banks determine a credit limit on a secured credit card?” Some banks will give you a
credit limit up to 150% of your deposit (in savings). The norm for most banks on credit limits is the amount
you keep on deposit (in savings).
Almost anyone who has a job and can put up a deposit in a savings account can obtain a secured credit card.
Usually the minimum deposit for a secured credit card is $500 to $1,000, depending on the bank. These cards
look, act, and can be used just like unsecured bank credit cards. No one can tell that your credit card is a
secured credit card when you make a purchase. Almost all banks and some credit unions offer secured credit
cards. Terms and conditions may vary from each credit card issuer. In addition, secured credit cards are a plus
for people that have filed bankruptcy and need to re-establish credit.
Qualifying for a Credit Card

1. How do I Qualify?
In order to qualify for a credit card, you must be at least 18 years old and have a steady source of income. If you
meet these qualifications, you’re well on your way to obtaining a credit card in your name. Even though you
received a pre-approved invitation or an invitation to apply from a credit card company, you’ll still have to
demonstrate that you are a credit good risk that has steady income with the ability to pay before they approve
and issue you a credit card. Credit card companies run your credit report with your approval, and your credit
history will help the credit card company determine if you should receive a credit card. In addition, your credit
history will show other debts that you are making payments on, car loans, student loans, other credit cards, etc.
These payment histories, if current and on time, will show how responsible you’ve been in paying your bills and
helps the credit card company decide how much credit (limit) to extend to you on a credit card.
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Note: Before you apply for a credit card, you should obtain a copy of your credit report from the three credit
bureaus to make sure that payment information is being reported accurately. Here are the three credit bureaus
and their phone numbers:
1. Equifax – 800-685-1111
2. Experian (formerly TRW) – 888-397-3742
3. Trans Union – 800-888-4213
2. What if my Application is denied?

If a credit card company decides to not approve your application, they will send you a denial letter in the mail
outlining why they denied your application. Different credit card companies have different standards for
approving applications. You could be denied for these reasons:
• Have not been at your current address long enough

• Have not been at your job long enough
• Collection and charge-off accounts
• Late pays on your accounts
• Income doesn’t meet the qualification requirements
• Recent bankruptcy
• Repossessed accounts
If you have been denied credit because of information supplied by a credit bureau, federal law requires the
creditor (credit card company) to give you the name, address, and telephone number of the bureau that
supplied the information. If you contact that bureau within 60 days of receiving the denial, you are entitled to
a free copy of your report. If you find an error in your credit report, you are entitled to have it investigated by the
credit bureau and corrected at no charge.
WHAT ARE THE COSTS ASSOCIATED

WITH CREDIT CARDS?
There are six costs associated with using credit cards. Let’s review below the different costs and how they work.
1. Interest – This is added to your credit card. Interest is usually around 18.9% and is compounded on a
monthly basis against the balance that you carry on your credit card. Interest is how credit card issuers
make money. Interest is also what makes up the finance charge.
2. Annual Fees – Some credit card issuers charge these fees ($75 or higher) to your credit card
each year. Annual fees are also sometimes called membership fees. Credit cards that don’t charge an annual
fee will often charge a higher interest rate. They charge high interest to consumers in order to cover losses
due to non-payments, collections, or bankruptcy. Each time a consumer doesn’t pay, all cardholders suffer
by increased interest rates.
3. Cash Advance Fees – These fees are quite simple. As you borrow cash against your credit card, the credit
card issuer will charge you a fee. Cash advancements will accumulate interest just like a revolving balance
on a bank credit card. The only difference is that credit card issuers don’t waive interest if the balance is paid
in full within 30 days.
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4. Transaction Fees – These fees are sometimes charged to your credit card account if you change your
payment due date, use your credit card, ask to lower your interest rate, transfer money, etc. Each credit card
issuer has their own guidelines. These fees are rare and are not standard with national banks.
5. Late Fees – Late fees are charged to your credit card account if your payment has not been received by the
credit card issuer’s due date, which is stated on the credit card statement. The fee can range from $20 to $29.
These fees are very common and can add up quickly. Sometimes they can actually increase your overall
balance.
6. Over-limit Fees – Credit card issuers have the right to charge you a fee if you charge in excess of your
credit limit. This fee can range from $20 to $40, depending on the credit card issuer. If you go over your credit
limit, most credit card issuers may request that you pay the amount you’re over the limit, in addition to the
minimum monthly payment called for on your credit card statement.
Other Features of Credit Cards

A credit card is a form of borrowing that often involves charges. Credit terms and conditions affect your overall cost.
The following is some important information that you should know about your credit card.
1. Free Period. This free period is also called “grace period.” A free period lets you avoid finance charges by
paying your balance in full before it is due. You should know if your credit card gives you a free period,
especially if you plan to pay your account in full each month. Without a free period, you will be charged a
finance charge from the date you use the card or from the date of each transaction on your account.
2. Balance Computation Method for the Finance Charge. If you do not have a free period or you plan
to pay your credit card balance over time, it is important to know what method the credit card company uses
to calculate your finance charges. This can make a big difference in how much of a finance charge you’ll pay.
(See Chart below for example)
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3. Average Daily Balance. This is the most common calculation method. It credits your account from
the day the payment is received by the credit card company. To figure your balance due, the credit card
company totals the beginning balance for each day in the billing period and subtracts any credits (payments)
made to your account that day. While new purchases may or may not be added to your total balance, cash
advances are typically included. The resulting daily balances are added for the billing cycle. The total is then
divided by the number of days in the billing period to get the “Average Daily Balances.”
4. Adjusted Balances. This method is best for cardholders. Your adjusted balance is determined by
subtracting payments or credits received during the current billing period from the balance at the end of
the previous billing period. New purchases to the account during the billing period aren’t included. In
addition, this method gives the cardholder until the end of the billing cycle to pay a portion of the balance
to avoid the interest charges on that amount.
5. Previous Balance. This is the total amount you owed at the end of the previous billing period on your
credit card account. Payments, credits, and new purchases during the current billing period are not included.
6. Two-cycle Balances. Some credit card companies use this method to calculate your balance over
the last two months’ account activity. Review your credit card statement to find out if your credit card
company uses this method. If you cannot find it or understand how the balance is calculated, ask your
credit card company to explain it to you. In addition, the credit card company must provide an explanation
of this method on your billing statement.
HOW MANY CREDIT

CARDS DO YOU NEED?
There is no magical number when deciding on how many credit cards you need. We believe that you should
have no more than four credit cards. For example:
1. Bank credit card (Visa or MasterCard) or a travel & entertainment credit card
(American Express)
2. Gas and oil company credit card
3. Department store credit card
4. ATM bank debit card
Having more than five credit cards may affect your credit rating with other companies to whom you are
applying for credit. Some companies may view you as someone who needs credit. This could send a message
that you have no available cash and that you could be having or beginning to have financial problems.
Having too many credit cards makes it easy for you to charge on all of them and before you know it, you’re
in over your head! Having too much debt can affect your credit rating when purchasing large items like a
house or a car.
When you have decided on how many and the type of credit cards you wish to use, you should keep a record of the
following information in a safe place in the event that your wallet or purse is stolen or lost.
1. The name of the card or issuer

2. The address of the card issuer
3. The customer service phone number of the issuer
4. The account number of the card
5. Expiration date of the card
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Cardholder Protections
Federal law provides protection to consumers on their use of credit cards. Here are some of the protections
consumers have available when using credit cards.
1. Errors on your bill. Credit card companies must follow specific rules for correcting billing
errors. Most credit card companies will send you a copy in the mail of these rules, and in many
cases, include a summary of these rules on your bills. If you find a mistake on your bill, you must
notify the credit card company in writing within 60 days after the first bill containing the error was
mailed to you. You have the right to dispute the charge and withhold payment on that amount while
the charge is being investigated.
Billing errors can be caused from the wrong amount being charged, for items you didn’t accept,
or for items that weren’t delivered to you. Whatever the reason, you must still pay the amount of
the bill that’s not in dispute, including any finance and other charges.
2. Unauthorized Charges. If someone uses your credit card without your permission, you can
be held responsible for up to $50 per card. If you report your credit card lost before it is used, the
credit card company cannot hold you liable for any unauthorized charges. In the worst case, if a thief
steals your credit card before you report it, you will only be liable for up to $50 per card. If you lose
your credit card, report it as soon as possible. Most credit card companies have 24-hour
toll-free telephone numbers to report lost cards.
3. Prompt Credit for Payment. The credit card company must credit your account balance the
day they receive your payment. Mailing to the wrong payment address could delay crediting on your
account and your account could result in a late payment charge.
4. Refunds of Credit Balances. When you make a return or pay more than the total balance, you
can keep the credit on your account or request in writing a refund. For a refund, the amount must
be more than a dollar. A refund must be sent within seven business days from receiving your written
request. Also, if a credit stays on your account for more than six months, the credit card company
must attempt to send you a refund
5. Disputes about Merchandise or Services. As a cardholder, you have the right to dispute
any charges for unsatisfactory goods or services. To do so, you must:
• Have made the purchase in your home state or within 100 miles of your current billing
address. The charge must be more than $50
• First make a good faith effort to resolve the dispute with the seller
Note: If these two conditions above don’t apply, you may want to consider filing an action
complaint in small claims court.
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Kinds of Credit Accounts

Companies that extend credit generally issue three types of credit accounts to consumers. Here are the three
credit accounts available:
1. Revolving Agreement. This type of agreement allows the consumer to pay in full each month
or choose to make a partial payment based on the outstanding balance. Department stores, gas and oil
companies, and banks typically issue credit cards based on revolving credit.
2. Charge Agreement. This type of agreement requires the consumer to pay the full balance each
month so the borrower does not have to pay interest charges. These accounts are considered charge
cards, not credit cards, and charge accounts with local businesses.
3. Installment Agreement. This type of agreement requires the consumer to pay a fixed amount each
month under a contract over a specific period. Auto loans, furniture, and major appliances are often
financed as an installment agreement. In addition, personal loans from banks, credit unions, and
finance companies are usually paid under installment agreements.
Credit Cards...
What To Do If They’re Lost or Stolen
To limit your loss, you should report the lost or stolen credit card(s) and/or ATM card(s) to the card issuer
(bank or credit union) as quickly as possible. Most card issuers have toll-free numbers that are hooked up to a
24-hour service that deals with lost or stolen cards.
Note: Most homeowner’s insurance policies cover the liability incurred due to card theft. If your policy does not
cover it, it might be a good idea to change your insurance policy to include card theft protection.
1. Credit Card Loss. The Fair Credit Billing Act (FCBA) states that if you report your card(s) lost before
the card(s) are used, you cannot be held liable for any unauthorized charges. If the card(s) are used
before you report them lost, the FCBA states that you are only liable for unauthorized charges of $50
per card.
Note: Be sure to review your credit card statements after you have reported the loss for
unauthorized charges. If you notice any unauthorized charges, you need to send a letter to the card
issuer “billing errors” address, not the payment address disputing those unauthorized charges.
2. ATM Card Loss. The Electronic Fund Transfer Act (EFTA) states that if you report your card(s)
lost before the card is used, you cannot be held liable for any unauthorized withdrawals. If the card
is used before you report it lost, the EFTA states that the amount you can be held liable for depends
upon how quickly you report the loss. Here are two rules to live by:
• Rule 1 – If you report your loss within two business days after your card in missing,
you will not be responsible for more than $50 for unauthorized use.
• Rule 2 – If you report your loss after two business days, you could lose up to $500 because
of an unauthorized withdrawal. You risk unlimited loss if you fail to report an unauthorized
transfer or withdrawal within 60 days after your bank statement in mailed to you.
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Credit Card Blocking

Have you ever been told you were over your credit limit, even though you knew you weren’t? Usually this will
happen if you have recently stayed in a hotel or rented a car. This problem is known as credit card blocking.
What’s Blocking?
If you use your credit card to check into a hotel or rent a car, that company will contact your card issuer and give
them an estimated total of your expenses. If your card issuer approves it, your available credit is reduced by
this amount. That’s a “block.”
For example: If you check into a hotel that costs $100 per night and you plan to stay seven days, the hotel will
“block” $700 on your credit card. In addition, most hotels will include anticipated charges like food and/or
beverages.
Why Blocking Can Be a Problem:
Hotels and car rental companies use blocking to make sure you don’t exceed your credit limit before they get
paid for their services. You need to be aware of your credit limit before checking into a hotel or renting a car. It
can quite embarrassing to have your card declined because you’ve reached your credit limit, especially if you
have an emergency purchase.
How to Avoid Blocking:
To avoid the inconvenience and embarrassment that blocking can cause, you should consider these tips:
• Use the same credit card to pay for your hotel or rental car that you secured them with.
• Know your credit limit. Ask the clerk at the hotel or rental car company how much will be
blocked on your card for their services.
• If you plan to pay with a different credit card or by check or cash, make sure to have the
clerk remove the block on your card.
Beware of Gold and

Platinum Card Offers
Some companies offer “gold” and “platinum” cards that seem like bank credit cards. In most cases they are cards
that only permit you to buy merchandise only from specialized catalogues. In addition, these companies, state
that if you obtain one of their cards, it will improve your credit rating and it will help you obtain major bank
credit cards. This is not true. The only type of credit card that you might get is a “secured” credit card that
requires a security deposit.
Do not confuse these cards with true “gold” and “platinum” cards issued from major banks. These cards are
typically reserved for more “high profile” clients with high credit limits and low interest rates.
35
These “gold” and “platinum” cards do not get reported to credit bureaus. Such cards are marketed through TV,
newspapers, direct mail, or telephone solicitations. These companies usually target people who live in lower-
income areas. Don’t be fooled by these companies.
If you’re planning to obtain one of these “gold” or “platinum” catalogue cards, here are some tips to watch out
for:
Tip 1 – Be wary of companies who charge up-front fees without saying there may be additional
costs.
Tip 2 – Be wary of companies that use 900 or 976 telephone exchanges.
Tip 3 – Be wary of companies that misrepresent prices and payments for merchandise.
Tip 4 – Be wary of companies that promise to help you improve your credit.
Tip 5 – You should think twice before obtaining the card. Contact your local Better Business
Bureau, consumer protection agency, or state Attorney General’s office to see if any complaints
have been filed against that company offering the “gold” or “platinum” cards.
Ten Tips to Save Yourself From

Credit Card Fraud
“You think you’re safe...and you probably are. After all, with more than 500 million Visa, MasterCard, American
Express, and Discover credit cards in circulation, how likely is it that a credit criminal would steal yours?”
Considering that Americans charge more than $1.2 trillion on their Visa, MasterCard, American Express, and
Discover alone each year, and that fraud costs less than two percent of that total, the odds certainly are in your
favor. However...
HERE ARE 10 EASY TIPS

TO PROTECT YOUR CREDIT CARDS FROM FRAUD
1. Sign your new credit cards as soon as they arrive.

2. Minimize the number of credit cards you carry in your wallet. Store any cards you don’t carry with you in
a safe place. Treat all of your cards like cash.
3. Install a locked mailbox at your home to guard against mail theft. If this is impossible, consider using a post
office box.
4. Remember to get your card and receipt after you buy something, and double-check to be sure they’re yours.
5. Never give your credit card number over the phone unless you initiate the call or you already have a
relationship with the company.
6. Take care with your credit card receipts, monthly statements, and pre-approved credit card offers. Never
throw them, or anything else with an account number, in the trash without first shredding them.
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7. Keep a list of all your credit cards along with their account numbers, expiration dates, and customer service
phone numbers. Store this list in a safe place. In the unlikely event of fraud, quickly notify all your credit
grantors.
8. Don’t write your account number or Social Security number on a post card or the outside of an envelope.
9. If your billing statement is wrong or your cards are lost or stolen, call your card issuers immediately.
10. Request a copy of your credit report at least twice a year, and check for any fraudulent use of your accounts.
Someone may have applied for credit in your name.
WHAT TO DO IF
PRECAUTIONS DON T WORK
If you find yourself the victim of credit card fraud, notify each credit grantor whose bills you receive that the
account was opened or unauthorized charges were made by someone else without your permission or knowledge.
The next thing you need to do is call the fraud department of all three major nationwide credit reporting agencies.
Also, consider adding a fraud alert notice to your credit report. This will prevent future credit accounts from
being opened without your permission.
The addresses and phone numbers of the national credit bureaus are listed below.
1. EQUIFAX Credit Information Services

PO Box 740241, Atlanta, GA 30374
(800) 685-1111 www.equifax.com
2. TRANS UNION Corporation
PO Box 1000, Springfield, PA 19022
(800) 888-4213 www.transunion.com
3. Experian (Formerly TRW)
PO Box 9600, Allen, TX 75013
(888) 397-3742 www.experian.com
CREDIT REPORTS
You have a legal right to a copy of your personal credit report. Each national credit agency listed above will
have a file on you. If you have been denied credit recently, you may be entitled to a free credit report. If you
have not been denied credit recently you have the right to get a FREE copy once every 12 months from each
of the nationwide consumer credit reporting companies. For instant access to your free credit report, visit
www.annualcreditreport.com.
Why Do I Need Three Credit Reports?

Equifax, Trans Union, and Experian are three entirely different credit agencies. Different companies report
your credit to different credit bureaus. Some companies report to all three national credit agencies. You need
a copy of all three of your credit reports to make sure they are all reporting accurate information about you.
You can almost be sure that there is a mistake on one or all of your credit reports.
37
These mistakes or inaccuracies affect millions of Americans in a negative way – and most Americans are totally
unaware of them. It is not uncommon to find someone else’s negative information on your credit file just
because you and that person have the same name.
SUGGESTED PAMPHLETS TO READ
For more information on budget management and maintenance, ways to save and other financial resources,
contact the following:
1. Your Legal Guide to Consumer Credit – Available from the American Bar Association. 1-312-988-5725
2. Credit and Divorce – Available from the Bureau of Consumer Protection. 1-202-326-3650
3. Federal Direct Consolidation Loan Program – Will help consolidate your student loans and consider requests
for changes in payment and interest. 1-800-433-3243
4. Planning for College – Available from Investment Company Institute. 1-202-326-5800
5. Choosing a Mortgage That’s Right For You – Available from Fannie Mae, Consumer Education Group.
1-800-688-4663
6. How to Dispute Credit Report Errors – Available from the Bureau of Consumer Protection. 1-202-326-3650
7. The Credit Union League – Find the Credit Unions in your town to see if you qualify. 1-800-358-5710
8. Guide to Free Tax Services – Available from the Internal Revenue Service. 1-800-829-1040
9. The Mortgage Money Guide – Available from the Federal Trade Commission. 1-202-326-2222
38
SECTION 4
Information About
Electronic Banking
SECTION 4 – Information about Electronic Banking
Introduction To
Electronic Banking
Electronic banking to most consumers means 24-hour access to their cash through an automated teller machine
(ATM). Having your paychecks directly deposited into your checking or savings accounts is also a part of electronic
banking.
Electronic banking uses highly sophisticated computers and technology to give you access to your cash. This
technology is a substitute for paper checks and other paper transactions.
Electronic banking is also known as “Electronic Fund Transfer (EFT).” Most banks, credit unions, and other
financial institutions use an automated teller machine (ATM) card and a personal PIN number to allow you to
gain access to your account and transfer your cash.
Electronic Fund Transfers
• Automated Teller Machines (ATM) – ATM machines or terminals allow you to access your cash
at almost any time, anywhere to purchase items or secure services. With your ATM card and personal
PIN number, these ATM machines allow you to withdraw cash, make deposits, or transfer funds from
one account to another.
Most ATM machines charge a usage fee ($1.50 to $2.00) to consumers who are not members of their
bank, credit union, or financial institution. This usage fee will appear on the ATM computer screen,
and you must agree to the usage fee before you can withdraw cash. This usage fee is usually deducted
at the time of your ATM withdrawal, and it will appear on your monthly bank statement.
• Direct Deposit – This method allows you to authorize your employer to deposit your paychecks
directly into your checking or savings account. You can almost authorize any person or company that
you receive income from to directly deposit into your checking or savings account. In addition to direct
deposit, you can pre-authorize your banking institution to pay recurring bills, such as insurance
premiums, car payments, mortgage payments, utility bills, etc.
• Pay-by-Phone Systems – This method allows you to call your banking institution and instruct
them to pay specific bills or to transfer funds from one account to another. This method requires
that you set up an agreement with your banking institution to make such transfers.
• Personal Computer Banking – This method allows you to access your bank accounts via your
personal computer and conduct many electronic transactions, such as viewing account balances,
transferring funds between accounts and paying bills electronically.
• Point-of-Sale Transfers – This method allows you to make retail purchases with your ATM debit
card. At the point of sale the money is transferred immediately from your bank account to the
store’s account. This method is growing rapidly with merchants nationwide.
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Electronic Fund
Transfers Disclosures
It is very important that you understand your rights and responsibilities regarding your EFT account. Before you
contract for EFT services or make your first electronic fund transfer, the financial institution must tell you the
following information in a form you can keep.
A summary of your liability for unauthorized transfers.
• The telephone number and address of the person to be notified if you think an unauthorized transfer
has been or may be made. A statement of the institution’s “business days,” generally, the days the
institution is open to the public for normal business and the number of days you have to report
unauthorized transfers.
• The type of transfers you can make. The fees charged for transfers and any limits on the dollar
amount of transfers.
• A summary of your rights to receive documentation of transfers, to stop payment on a pre-authorized
transfer, and the procedures to follow to stop payment.
• A notice outlining the procedures you must follow to report an error on a receipt for an EFT or
your statement, to request information about a transfer listed on your statement, and how long you
have to make your report.
• A summary of the institution’s liability to you if it fails to make or stop certain transactions.
• Circumstances under which the institution will disclose information to third parties concerning
your account.
In addition to these disclosures above, you will receive two other types of valuable information for most
transactions:
1. Terminal receipts – You are entitled to a terminal receipt each time you initiate an electronic
transfer, whether you use an ATM or make a point-of-sale electronic transfer. The receipt must
show the amount and date of the transfer as well as the type of transfer, such as “from checking
to savings.”
2. Periodic statements – You also are entitled to a periodic statement for each statement cycle in
which an electronic transfer is made. This statement must show the amount of any transfer, the
date it was credited or debited to your account, the type of transfer and types of account(s) to or
from which funds were transferred, and the address and telephone number to be used for inquiries.
You are entitled to a quarterly statement even if no electronic transfers were made.
Note: You should keep and compare your EFT receipts with your periodic statements the same
way you compare your credit card invoices with your monthly credit card statements.
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Electronic Fund
Transfer Errors
Under federal law, you have 60 days from the date a problem or error appears on your periodic statements or
terminal receipt to notify your financial institution. If you fail to notify the institution of the error within 60 days,
you may have little recourse. Therefore, the institution has no obligation to conduct an investigation if
you have missed the 60-day deadline.
The best way to protect yourself if an error occurs or your ATM card is stolen is to notify the financial institution
in writing by certified mail, return receipt requested, so you can prove that the financial institution received your
dispute letter within the 60-day deadline period. Make sure to keep a copy of the dispute letter and return receipt
for your records.
How long does an institution have to respond to your error? Once the institution has received your
dispute letter about an error, the institution has 10 business days to investigate your error. Once the institution
has completed their investigation on your error, that institution must notify you of the results within three
business days after completing it and they must correct an error within one business day after determining that
the error has occurred.
Note: The institution can take an additional 35 days, if needed, to complete an investigation on an error, but
only if the money in dispute is returned to your account and you are notified promptly of the credit. At the end
of the 35th day investigation, if no error has been found, the institution may take the money back if it sends you
a written explanation.
How to Deal With

Lost or Stolen EFT Cards
If your “credit card” is lost or stolen, you can’t lose more than $50. If someone uses your ATM or EFT card
without your permission, you can lose much more than $50.
• If you report the card missing within two business days after you realize the card is missing and
there is unauthorized use that occurred, you will not be responsible for more than $50.
• If you report the card missing after two business days, you could lose as much as $500 because
of an unauthorized withdrawal. In addition, if you do not report an unauthorized transfer or
withdrawal within 60 days after your statement is mailed to you, you risk unlimited loss. Therefore,
you could lose all your money in your account and possibly some of your overdraft line of credit.
Even though you are the victim, you could end up owing the institution money. Always report a
lost or stolen card.
• Once you report the lost or stolen card, you are not liable for additional unauthorized transfers
that may be made on your account. Most likely these unauthorized transfers will appear on your
statement so you should carefully review each statement after you’ve reported a lost or stolen card.
42
Limited Stop-Payment Privileges

The EFT Act says that when you use an electronic fund transfer to purchase items or services, you do not have
the right to stop payment, even if the item is defective or the service wasn’t completed satisfactorily. Electronic
fund transfer is the same as if you paid cash. At this point, it is up to you to resolve any problem with the seller
and get your money back.
You can stop payment only one way through an electronic fund transfer. If you have arranged for a third
party to draft regular payments from your account, such as a life insurance company, you can stop future
payments by notifying the institution at least three business days before the next scheduled transfer from your
account. The stop payment notice can be oral or written. We recommend that you put it into writing and either
fax it or send it via certified mail, return receipt requested.
Keep in mind that federal law provides only limited rights to stop payment on EFT’s. When looking to set up
an EFT account, you should shop around to be sure you are getting the best “stop payment” terms available.
Other Rights on EFT

The Electronic Fund Transfer (EFT) Act protects your rights in two situations regarding the use of electronic
fund transfers:
1. The EFT Act prohibits financial institutions from requiring you to repay loans by electronic transfer.
2. The EFT Act also states that if you are required to receive your salary or government benefit check
by EFT, you have the right to choose the financial institution that receives the funds to deposit into
your account.
Tips on EFT
If you decide that EFT is what you need, here are four tips to keep in mind:
Tip 1 – Keep your EFT card in a safe place. If you lose it or it is stolen, report it as soon as possible.
Tip 2 – When choosing a PIN number, do not choose your address, telephone number, Social
Security number, or birth date. Choosing a different number will make it more difficult for a
thief to use it.
Tip 3 – Set up a file and keep all your EFT receipts with your periodic statements so that you
can review them for unauthorized use and errors.
Tip 4 – Make sure that you know, trust, and understand the services that merchant is providing
before you provide any bank account information to pre-authorize debits to your account.
43
Electronic Check Conversion

The next time you write a check to a retail store or local merchant, the cashier may hand your check back to
you after the sale transaction. Why? More retailers and merchants are using “electronic check conversion,”
which is a service that converts a paper check into an electronic payment at the point of sale.
How does electronic check conversion work?
At the point of sale, you write a check and give it to the store cashier. The cashier takes the check and
processes it through an electronic system that captures your banking information and the amount of the check.
Once the check is processed, you’ll sign a receipt authorizing the retail store or merchant to electronically transfer
from your account and deposit those funds into the merchant’s account. The store cashier will give you your
check back, which should be voided so that it cannot be used again.
What does electronic check conversion mean to you?
Electronic check conversion means that you cannot float money. If you write a check today, you must have the
funds available the same day to cover it. If you do not have available funds at the time you write the check, your
check will bounce and you will be charged a bounced check fee. Bounced checks can hurt your credit record.
Tips from the Federal Trade Commission.
The Federal Trade Commission suggests these tips when using electronic check conversion:
• Tip 1 – Keep track of your deposits. Make sure that you record all in-person deposits as well as
automatic or Electronic Fund Transfer (EFT) deposits to your checking account at the time of the
deposit. You should save your deposit receipts. They can help correct mistakes if needed.
• Tip 2 – Keep track of your withdrawals. You should record and subtract all of your all transactions,
which include checks you write, ATM withdrawals, electronic check conversions, and debit card
payments in your checkbook at the point of sale. In addition, remember to record any bank fees,
services charges, and ATM withdrawal fees.
• Tip 3 – Balance your checkbook. You should get into a habit of balancing your checkbook each time
you receive a statement from your bank. Your bank statement, deposits, withdrawals, and checks
should match your checkbook. If your checking account won’t balance and you can’t find the error,
call you’re customer service representative at your bank for help. In most cases people forget to record
ATM withdrawals and debit card payments.
Guide to Online Payments

The Internet is growing and has taken its place next to the telephone and television. More and more
consumers everyday are using the Internet to purchase items, services and other financial activities like
investing and banking. Most consumers use credit or debit cards to pay for these online purchases or activities.
The Federal Trade Commission has put together this information below on how to pay for goods and services
online and how to make sure your transactions are safe and secure from theft or fraud.
44
1. Ways to pay online.

• Credit cards – This is the most common method for purchasing goods and services online. This
method is considered the safest way for online purchases. Once you give your credit card information,
the merchant you are purchasing from will obtain pre-authorization to debit your credit card. If for
some reason you do not receive your merchandise or it is damaged, you can file a complaint with
your credit card company to investigate and have the debit amount reversed.
• ATM debit cards – These cards authorize merchants to electronically debit your bank account.
This method can be dangerous if you’re dealing with a merchant that is scamming you. Debit cards
are different than credit cards. The one important difference is when you use a debit card, the money
for the purchase is transferred almost immediately from your bank account to the merchant’s bank
account. Once the money is electronically transferred it’s gone.
• Stored-value cards – These cards allow consumers to transfer cash value to the card. Some stored
value cards work offline (to purchase items at a retail store); other work online (to buy items and services
over the Internet); or they may have both features. Some stored value cards have computer chips
contained within the card, which make them “smart cards.” Smart cards act like credit and debit cards,
but contain stored value.
2. Paying safely online.

Consumer should be aware when purchasing online. You need to make sure that all transactions are secured
and your personal information is protected. Although you can’t control fraud on the Internet, you can take certain
steps to guard yourself from fraud. Here are some tips to follow:
• Tip 1 – Use a secured browser. A secured browser has software that encrypts or scrambles the
purchase information you send over the Internet, therefore, guarding the security of your online
transaction. If your computer does not have a secured browser, you can oftentimes download a
secured browser for free over the Internet.
• Tip 2 – Keep records. You should keep a log or file of all your online transactions. Most merchants
will send you an e-mail about your recent purchase. It’s important to read these e-mails; some may
have information that you may need about the purchase. In addition, these e-mails are great for your
records. Make sure to print a copy and file it away.
• Tip 3 – Review bank statements. Once your statements come in from your bank, you should
review them for errors or unauthorized purchases. If you notice an error or unauthorized purchase,
notify your card issuer immediately.
• Tip 4 – Websites. Before you purchase from a specific website, be certain to review their policies
and disclosures about their website’s security, its refund and return policy, and its privacy policy on
collecting and using personal information. If you can’t find a privacy policy on the website, you should
consider shopping elsewhere.
• Tip 5 – Personal Information. When shopping on the Internet, don’t disclose your personal
information - your address, telephone number, Social Security number, or e-mail address - unless you
know who’s collecting the information, why they’re collecting it, and how they plan to use it.
• Tip 6 – Payment information. You should only give payment information to businesses you
know and trust.
45
• Tip 7 – Internet password. Never give your password to anyone online, even your Internet
service provider.
• Tip 8 – Internet files. Do not download Internet files sent to you by strangers or click on
hyperlinks from people you don’t know. Opening files you’re not familiar with could expose your
system to a computer virus.
Where to File EFT Complaints

If you think a financial institution or merchant has failed to fulfill its obligation to you under the EFT Act, you
need to stand up for your rights and file a complaint. You can file a complaint with the federal agency listed
below that has enforcement jurisdiction over that company.
State Member Banks of the Federal Reserve System

Consumer and Community Affairs
Board of Governors of the Federal Reserve System
20th & C Sts., N.W., Mail Stop 800
Washington, D.C. 20551
National Banks
Office of the Comptroller of the Currency
Compliance Management
Mail Stop 7-5
Federal Credit Unions

National Credit Union Administration
1776 G Street, N.W.
Non-Member Federally Insured Banks

Office of Consumer Programs
Federal Deposit Insurance Corporation
550 Seventeenth Street, N.W.
Federally Insured Savings and Loans and Federally Chartered State Banks
Consumer Affairs Program
Office of Thrift Supervision
1700 G Street, N.W.
Important Note: You can also contact the Federal Trade Commission (FTC) on any fraudulent, deceptive, and
unfair business practice in the marketplace. You can call toll-free at 1-877-382-4357 or use the online compliant
form at www.ftc.gov.
46
OUR
EDUCATIONAL BOOK
CAN HELP...
DEVELOP THE SKILLS TO FURTHER HELP
YOU UNDERSTAND YOUR PERSONAL FINANCES
AND HOW TO MANAGE THEM.
MODIFY YOUR FINANCIAL BEHAVIOR SO YOU

CAN MAKE BETTER FINANCIAL DECISIONS.
EMPOWER YOU TO SUCCEED IN REGAINING

CONTROL OF YOUR PERSONAL AND FINANCIAL
FUTURE.
A MERICAN
C ONSUMER
C REDIT
C OUNSELING
THE CREDIT COUNSELING PROFESSIONALS
130 Rumford Avenue, Suite 202

Newton, MA 02466
1-800-769-3571
www.moneymanagmentschool.org

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Household Budgets, Credit Cards and Electronic Banking

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A MERICAN

AMERICAN CONSUMER CREDIT COUNSELING INC.,

Section 1: Household Budgeting Information .................................................................1

Section 2: Budgeting and Planning Tips ............................................................................7

Section 3: Information About Credit Cards .....................................................................25

Section 4: Information on Electronic Banking ................................................................39

“Today’s Education is Tomorrow’s Success”

We wish you luck and much success!

Third Edition - Rev.01-20-06

1. What is a household budget?

2. What is cash flow?

3. What is disposable net income?

5. What is the best way to keep track of my spending?

6. How do I figure out what my living expenses are each month?

7. How much money should I be saving each month?

8. How much money should I have for an emergency?

9. Is it good to keep all my money in a checking account?

“Today’s Education is Tomorrow’s Success”

11. I am always behind in bills. How can I fix it?

12. I’m addicted to credit cards. How can I control them?

13. What is revolving debt?

14. What is the difference between interest and finance charge?

Consumer Spending Statistics

“Today’s Education is Tomorrow’s Success”

“Today’s Education is Tomorrow’s Success”

• Purchasing a New Car:

“Today’s Education is Tomorrow’s Success”

“Today’s Education is Tomorrow’s Success”

• Purchasing a Used Car:

“Today’s Education is Tomorrow’s Success”

“Today’s Education is Tomorrow’s Success”

“Today’s Education is Tomorrow’s Success”

• While on your trip:

“Today’s Education is Tomorrow’s Success”

4. BANKING & CREDIT

“Today’s Education is Tomorrow’s Success”

• Savings and Investment Accounts:

“Today’s Education is Tomorrow’s Success”

• Home Equity Loans:

“Today’s Education is Tomorrow’s Success”

“Today’s Education is Tomorrow’s Success”

• Winterizing Your Home:

• Local Telephone Service:

• Long Distance Telephone Service:

“Today’s Education is Tomorrow’s Success”

• Shopping from Home:

“Today’s Education is Tomorrow’s Success”

• Discount Buying Clubs:

8. PAYING BILLS ONLINE:

“Today’s Education is Tomorrow’s Success”

“Today’s Education is Tomorrow’s Success”

• Nine steps to help you meet your goals:

“Today’s Education is Tomorrow’s Success”

Tax Planning Tips

“Today’s Education is Tomorrow’s Success”

• How to check out a business with the BBB near you:

• How to file a complaint against a business with the BBB:

Valuable Books to Read

“Today’s Education is Tomorrow’s Success”

WHAT IS A CREDIT CARD?

1. BANK CREDIT CARDS:

“Today’s Education is Tomorrow’s Success”

2. DEPARTMENT STORE CREDIT CARDS: