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222 Unit 3 Investigating Career Pathways in Human Services
With revolving credit, lenders make money through fi nance charges,
which are fees charged for buying on credit. In the case of credit cards,
lenders may charge both the merchant a percentage of the purchase price
and the purchaser for balances owed on the account. Although there are
regulations governing the amount of fi nance charge that may be charged,
there is a wide range of interest rates. These rates may range from 0 to 24+
percent Annual Percentage Rate (APR). The rate charged can depend
on the credit-worthiness of the borrower, the type of loan, the amount
and length of the loan, promotions, and any collateral property that may
protect the loan.
Credit spending, for example, using credit cards rather than cash
to make purchases, has become out of control in the last few decades.
As a result, many people face huge debts. Credit card companies
generally require borrowers to make a minimum monthly payment.
Unfortunately, if only the minimum monthly payment is made, the
majority of the payment goes toward interest. The debt remains for
many years, until the loan is paid. This can turn into a vicious cycle of
credit overuse and high interest costs. The best way to utilize credit card
spending is to spend only as much as a person can budget to pay off
each month. This allows for the use of a bank’s money with no interest
expense.
Expert Insight
“Never spend
your money before
you have it.”
Thomas Jefferson,
former US president
wavebreakmedia/Shutterstock.com
Figure 8.19 Defaulting on a federal student loan can result in the government taking a
portion of your earnings, suing you, or reducing payments on benefits (such as Social
Security retirement or disability). The IRS can also take any tax refunds you receive. If
someone is struggling to pay a student loan, what should the person do?