*Personal Financial Literacy Resource Guide*

This chapter defines consumer credit and analyzes its advantages and disadvantages. The importance of consumer credit in our economy is explained and uses and misuses of credit are discussed. Financial and personal opportunity costs of using credit are emphasized. Next, two types of consumer credit—closed-end credit and open-end credit—are differentiated, and major sources of consumer credit are explained. Then, general rules of measuring credit capacity such as debt payments-to-income ratio and debt-to-equity ratio are explained. This is followed by coverage of building and maintaining a credit rating. Next, in determining cost of credit, we emphasize the finance charge and the Annual Percentage Rate (APR).  Then we show how the cost of credit can be determined by calculating interest with various interest formulas. Then, the steps in avoiding and correcting credit mistakes are outlined, and consumer credit laws are explained. Finally, we explain and distinguish between the Chapter 7 and Chapter 13 bankruptcy laws to assess the choices in declaring personal bankruptcy.