Question: I wanted to know about annual interest rates. Who’s job is it to know the rates. The numbers seem different than what is advertised. My boyfriend recently bought a TV and he just signed the papers and did not really understand the cost or rates. Renee Falls Church, Virgina

Answer: The “True Annual Interest Rate” sometimes called APR is something as a consumer you need to find out before making any purchase on credit. As the use of installment credit (using credit cards and paying minimums) has increased, a great deal of confusion has developed over interest rates. As a result, it has become extremely difficult and sometimes impossible for consumers to compare the cost to him on credit cards, credit from the bank, the credit union, the department store and other sources.

“Truth-in-lending” legislation has been updated many times since it was proposed in 1961 and there have been extensive hearings on the bill. Proponents say that the consumer “has the right to know.” Opponents (some lenders and retail establishments) argue, among other things, that it is impossible to figure accurately what the true annual interest rate would be on installment payments as they are commonly set up. There is some truth in this claim, but the consumer could be given much more exact information about interest rates than he usually is given.

As a consumer it is very important that you get yourself educated on the “True Cost” of borrowing before buying an item.

Managing family credit whatever your reasons, using credit in itself isn’t necessarily good or bad. It’s the way you use it that creates either benefits or problems for you and your family.

You have to manage credit. If you don’t, your debts will manage you and keep you from doing and having many things you really want.

You may not have thought of it in this way, but actually your credit, that is the confidence others have in you which makes it possible for you to borrow money or to buy on time, is indeed a valuable personal asset.

The purpose of the next few articles is to bring together some ideas which may help you use credit to your advantage.

We’re Talking About “Consumer” Credit

We are not talking about the mortgage on your home.

Our concern is only with consumer credit. By this, we mean the kind of credit families use to buy consumer goods and services – cars, flat screen LCD televisions, washing machines, computers, vacations, clothes, college expenses, in general things that are “consumed” (used to provide the kind of living a family wants). Consumer credit is short-term credit – usually within the range of 1 to 36 months.

Its use has exploded over the past 20 years, and buying on credit (using the ease of a credit card) rather than paying cash now seems to be the usual pattern of family money (credit) management Moreover, retail dealers and lending agencies all compete with each other to get more and more of us “on the cuff.”

It’s Your Money

In general, extending credit widely has provided a useful service for families, but it is not a free service. It costs money to buy “on time” or get “instant cash” from a lender. So it is worth your time to compare costs of credit from different sources – just as you compare costs of furniture or automobiles.

There’s another hazard. Credit purchases often are promoted in such a fashion that people may be tempted to buy more than they can afford. One more “small monthly payment” may seem hardly worth thinking about but when all the payments are put together they can add up to trouble. The very characteristic that makes installment credit a convenient means to provide a better living can result in a burden of debt that takes half a man’s pay check or more.

So it pays to ask a few questions before you sign the contract.

Managing credit, debt and the flow of money in a family often goes something like this…

Alice Smith lets out a sigh as she looks over the bills for the month, trying to think how they’ll stretch the paycheck her husband Jim will bring home tonight. Groceries will take $800. Then there’s the house payment, light bill, payment on the new washer, payment on the car, shoes for the kids, and the cell, cable and telephone bills.

Already it adds up to almost as much as Jim’s paycheck will be.

And there’s that bill for the things she charged on Visa. A birthday gift to buy for Susan. Allowances for the children. And Jim really needs a new suit before his trip to New York at the end of the month. They’ve been planning to get it from month to month but there never seems to be enough cash to go around.

Alice decides she’ll talk with Jim about getting the suit on some type of installment plan. They never have bought clothes “on time,” but she sees no other way to get the suit by the time he needs it.

And so it goes… another “easy” payment !

More Debt: Good or Bad?

Many other families are in the same boat as the Smith’s – using more and more credit to buy the things they want.

Some folks say this is a bad situation. Others say it’s good – that wide use of credit is one of the things that helps to give us such a high standard of living in America.

Good or bad, many families and individuals do use credit in order to enjoy today… instead of waiting until they can save the purchase price of such things as automobiles, refrigerators, washers, Big screen TV’s, education, and even vacation trips. Others use credit in the form of a charge account simply as a convenience. Still others borrow money to meet emergencies, such as illness or being out of work. And some folks say that buying electronic equipment and furnishings for the home on the installment plan is a way of saving – that they wouldn’t be able to save the purchase price of such items without a contract to make them do it. Moreover, some will say, even though it costs more to buy “on time,” it’s worth the extra cost to have certain conveniences and comforts while the family is growing, rather than to wait until enough savings can be accumulated.

Does that sound like your situation? That’s one of the reasons so many are experiencing such difficult times. There is a way out… and we’ll be digging deeper into the world of consumer finance. Get ready to make some changes in the way you handle money!