IntroductionKeys to Smart Vehicle Financing

Welcome to SmartEdge by GMAC.To many people, credit, vehicle financing and vehicle leasing are a mystery. They have a lot ofquestions, and aren’t sure where to go for answers. That’s where this workbook and theaccompanying video comes in. They are designed to help take the mystery out of credit, vehiclefinancing and vehicle leasing, as well as to provide answers that can make you a better and moreinformed consumer when shopping for your next new car or truck.

Please take the time to study and review this entire workbook and video. You will benefit the nexttime you walk into your automobile dealership.

Your Keys to Smart Vehicle Financing is divided into two main sections:

• Credit covers the main points of applying for and maintaining good credit, including theessentials of proper budgeting and how that impacts your creditworthiness

• Options is about the different payment options available, with a discussion of how the choicesyou make often determine what you pay

This workbook has been designed to be used in a number of helpful ways:

• As an introduction to those who have never applied for credit• As a refresher for those who want to reacquaint themselves with the ins-and-outs of credit and

financing• As a self-study guidebook or instructor led seminar• As a quick and easy-to-use resource whenever you have a question about credit or financing

Throughout this workbook you will find:

• Key Terms used in credit and financing• Exercises that help explain specific concepts• Review Questions • Helpful Resources – numbers to call and websites to visit for more information

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This workbook may be used alone or with a moderator. We suggest you mark pages you maywant to come back to later for reference when actually applying for credit or when financing orleasing a vehicle.

Just follow along and you will be on your way to making smart choices about getting thevehicle you want.

Note: The examples used in this workbook are for illustration only and may not accuratelyreflect any available transactions.

If you discover just one way to get more for your money in credit and financing, this workbookwill have been a success. One thing we can guarantee – by reading and using this workbook,you will be more knowledgeable and better prepared when seeking credit and shopping for avehicle.

IntroductionKeys to Smart Vehicle Financing

CreditCredit Introduction

This section is about the various aspects of your personal credit, and how credit impacts yourvehicle financing experience. It is also about your budget, and how budgeting wisely can help youacquire the car or home of your dreams. This section includes:

What You Need to Know About CreditThe credit part of this section covers basic information about:

• What is involved in applying for credit• Creditworthiness and the purpose of credit records• How creditworthiness affects you and your ability to get credit• How and why credit reporting agencies maintain credit reports• How to obtain your personal credit report• What a credit score is and how it is determined• How to avoid or correct credit problems• What are the consumer protection laws related to credit

Credit Has More Than One MeaningThe word credit can be used in two ways:

1. Credit allows you to buy now and pay later. You may be looking to buy something that you reallyneed, but don’t have the cash to pay for the purchase at that time.

2. Credit is a person’s reputation for paying bills when due. This is also referred to as yourwillingness and ability to pay or creditworthiness.

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CreditThe Importance of Good Credit

It is important to establish a good credit history, primarily by making your paymentson time. Your creditworthiness will not only affect your ability to borrow money orpurchase goods and services on credit, but may also affect:

Your Employment• Some employers require a credit report• Poor credit could mean you are not offered a job (for example, if you cannot be

bonded or obtain a security clearance)

Your Living Accommodations• Landlords regularly request credit information for applicants seeking apartments• Landlords do not want tenants who do not pay their bills

Your Finance Rate• Individuals with better credit histories can generally negotiate lower finance rates

than those who are greater credit risks

Your Convenience• Renting a car, making hotel reservations and hundreds of other transactions are

much easier if you have a credit card• Credit cards may be difficult to obtain if you have bad credit

Why You Need a Credit HistoryIf you have no credit history, creditors have a limited basis on which to make adecision about whether or not to give you credit – particularly if there’s a majorpurchase involved.

• One suggestion: Establish credit by obtaining a gasoline or department storecharge card and making payments on time

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CreditThe Consequences of Bad Credit

Besides harming your credit history, you might face the following outcomes if you don’t pay yourbills:

You May Be Charged a Late Fee• Anywhere between a few dollars to a percentage of the balance due

Your Credit Card May Be Frozen• So you can’t make any more purchases

You Could Be Denied Services• If you are late on utility bills or rent, your service could be discontinued or you could be evicted• You will have to pay any unpaid balances and expensive fees and deposits to reconnect your

services

You Could Face Legal Action• Such as garnishing your wages, where your employer is forced to send a portion of your pay to

the creditor before you get your check

You Could Lose Your Property• Creditors may seize, repossess, or foreclose on your property, such as your car or home

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Did You Know? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?Falling behind on payments can cause serious financial problems for years.

CreditKey Terms that apply to Credit

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Capacity:

Character:

Collateral:

Co-Signer

Creditor:

Credit Report:

Credit Reporting Agency:

Credit Score:

Lien:

Permissible Purpose:

Repossess:

Your ability to pay your debts.

Where credit is concerned, a person’s reputation for paying bills when due. This isalso referred to as your willingness and ability to pay or creditworthiness.

An asset pledged to the creditor until the credit obligation is paid. Example: If youown your home (or another car), it may be used as collateral to secure a car loan.

A person (co-buyer/co-lessee) who assumes equal responsibility for a contract orlease agreement.

A person or organization that regularly extends credit subject to a finance chargeand to whom the credit obligation is initially payable on the face of the contract.

A report about you and your payment history gathered by a credit reportingagency in an organized manner.

A firm that collects, sorts and sells information about an individual’s credithistory.

A numerical score that sums up – at a point in time – what your past and currentcredit usage predicts about your future credit performance based on statistics.The better your history of credit, the higher your score.

A legal claim on ownership stemming from a credit obligation.

The legally acceptable purpose(s) a creditor or organization has to obtain aperson’s credit report. Example: When you apply for credit, you are giving yourpotential creditor the legal right to obtain your credit report.

In the event of non payment of a credit obligation, a creditor’s legal right to takethe asset you have pledged as collateral and sell it to pay off the creditobligation.

CreditApplying for Credit – the Starting Point in the Process

Whether you want to finance or lease a vehicle, when you apply for credit, the credit applicationyou fill out is the first step in the process.

You can start the process early by going to www.gmacfs.com and filling out an ExpressApplication online. Once your information is received, GMAC will process it and quickly email youa printable certificate. At your convenience, you will need to select the dealer to which you areapplying and present this certificate to complete the application process. This saves time, sinceyou will already be well down the path to applying for credit before you visit the dealership.

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How to Avoid Delays - Be sure to fill out all of the information on the CreditApplication form completely and accurately

CreditHow Creditors Get InformationAbout You

When you fill out and sign a credit application, you are giving permission to the creditor to obtaina copy of your credit report.

What’s a Credit Report?A credit report is a document that:

• Contains information about you and your payment history collected and organized by a creditreporting agency

• Is available to those who are considering granting you credit

How Credit Report Information Is Collected• Each time you are granted credit or make a payment on an account, that information is

gathered by the nation’s three major credit reporting agencies:– Equifax– Experian– TransUnion

• Creditors provide data to the credit reporting agencies– Example: The type of account you have – such as revolving or installment credit – and how

often you pay.• These credit reporting agencies:

– Collect and sort the information obtained from all over the country– Package and sell the information in the form of a credit report

• Your current and potential creditors can then buy the credit report and evaluate whether ornot to approve or deny you credit

What Your Credit Report SaysYour credit report provides a lot of useful information, including answers to such questions as:

• Do you pay your bills on time?• How many credit obligations (such as credit cards and loans) do you have?• What is the total amount of credit that has been extended to you?• How much do you actually owe on all of your accounts?

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Did You Know? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?Credit reporting agencies simply report the facts on your credit background objectively– they do not approve or deny your request for credit.

Did You Know? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?What’s contained in your credit report can impact both the decision to grant you creditand the rate that you will pay.

CreditWhat’s In Your Credit Report?

Generally, there are five types of information that your credit report reflects:

1. Personal Identification Information• Your name, spouse’s name, Social Security number, current and previous addresses, birth date,

and current and previous employers• This information comes from your past credit applications, so it is important to completely and

honestly fill out forms every time you apply for credit

2. Public Records Information• Includes bankruptcies, tax liens and monetary judgments, and – in some cases – overdue child

support

3. Adverse/Collection Account Information• Information that reflects non payment of a debt, supplied by either the original creditor or a

collection agency

4. Credit Account Information• Each of your accounts with banks, stores, credit card issuers and/or other sources• Information includes date opened, amount, balance, monthly payment and payment pattern

going back several years• Some information is kept for as many as ten years

5. Inquiry Information• Who requested and obtained copies of your credit report, usually within the past two years

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CreditWhat’s NOT In Your Credit Report?

Credit Report ExerciseTest your Credit Report IQ. Answer “yes” or “no” regarding what is – or is not – in your credit report.

1. Late payment on your furniture loanYes_____ No_____

2. Employment informationYes_____ No_____

3. On time payments made on your department store cardYes_____ No_____

4. Your birth dateYes_____ No_____

5. Your raceYes_____ No_____

(ANSWERS DISPLAYED UPSIDE DOWN)

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Did You Know? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?Your credit report DOES NOT contain

• Certain personal information such as your race, religious preference, medical history,personal lifestyle, personal habits, social life, friends or relatives, political preferenceor criminal record

• Information about your checking or savings account, or major purchases paid withcash or check

1.Yes 2.Yes 3.Yes 4.Yes 5.No

CreditGet a Copy of Your Credit Report

Get a Copy of Your Credit Report Every 12 Months – Free!It’s a good idea to review your credit report on a regular basis. Checking that your credit reportdoesn’t include any credit cards or loans that you didn’t apply for is your best defense againstidentity theft. Also, checking your report helps to make sure that your credit score is beingcalculated on the basis of accurate information.

You can request a free credit report once every 12 months from each of the nationwide consumercredit reporting agencies: Equifax, Experian and TransUnion.

For information on how to request your report, go to www.annualcreditreport.com or call toll free(877) 322-8228.

Get a Copy of Your Credit Report Whenever You Want – For a FeeIf you want to receive a credit report more frequently than the free one you can get once a year,you can – for a small fee – obtain a copy of your credit report from any of the three major creditreporting agencies listed below. Call them toll free or visit their websites for more information.

Equifax (800) 685-1111 or equifax.comP.O. Box 105496Atlanta, GA 30348-5496

Experian (800) 311-4769 or experian.com/consumer.comP.O. Box 9600Allen, TX 75013

TransUnion LLC (800) 888-4213 or transunion.comConsumer Disclosure CenterP.O. Box 1000Chester, PA 19022

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CreditMistakes Happen – But You Can Correct Them

If you find mistakes on your credit report, take action immediately.

The credit reporting agency must look into your request within a reasonable period of time(usually 30 days) and delete any information they can’t verify.

• Your rights, including what steps you can take to correct your credit, can be found by reviewingthe Fair Credit Reporting Act at:– www.ftc.gov/os/statutes/fcra.htm– Toll free (877) FTC-HELP (382-4357)

• You can also write to:Federal Trade CommissionCRC-240Washington, D.C. 20580

Add a Consumer StatementIf you dispute information on your credit report and the investigation does not resolve thedispute, you may:

• Send in an explanation of any errors or adverse items which will be posted as a consumerstatement on your credit report– Write your statement in 100 words or less and send it to the credit reporting agency in

question

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What to Do if You Find Credit Report Errors - Contact the credit reportingagency immediately with the following information:

• Your name and address• Identify the item(s) that is incorrect• Provide documents to support your position• Request that the error be corrected

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CreditHow Do Creditors EvaluateYour Credit Report?

When your creditor receives your credit report, it usually comes with a score.

Additionally, many creditors have a method to take the information from your credit report andyour credit application and translate that into their own numerical score.

Credit scoring is the scientific process where a mathematical model determines a consumer’scredit risk by comparing information about one consumer to the credit performance of manyothers with similar credit profiles.

What Is a Good Score to Get?Scores range from 500 to 850, but the great majority of scores are in the 600s and 700s. Thehigher the score, the less risk there is for the creditor, so a score of 750 may qualify you for a betterrate than a score of 625.

The math is simple: The higher the score, the better.

How a Score Breaks DownYour credit score from a credit bureau (also known as your FICO score) is based on five factors.Here is how much each factor contributes to the overall score:

• Payment history – 35%• Current total debt – 30%• Requests for new credit – 10%• Types of credit in use – 10%• Length of credit history – 15%

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For more information on credit scoring visit www.myfico.com

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CreditHow Do Creditors EvaluateYour Credit Report?

You Pay Your Bills On Time• You are considered a good credit risk if you have a history of paying your bills on time

You Have a Small Amount of Total Debt• Make sure your total debt is not too large

– If a large portion of your income each month is already committed to paying off other credit,creditors will need to think about extending you new credit

You Don’t Have a Lot of Open Credit• Excess open credit can result from having too many credit cards• You may think having a lot of credit cards with high limits is a sign that you have good credit,

but creditors may look on your available credit as being a potential debt– In other words, creditors may believe too much open credit may lead you to overextend

yourself in the future

You Are Stable and Responsible• Creditors look for signs of stability and responsibility

– Numerous changes in address and/or employment may hurt your rating

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Four Things That Make Creditors Smile - 1) You pay your bills on time;2) you have a small amount of total debt; 3) you don’t have a lot ofopen credit; and 4) you are stable and responsible

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CreditHow Do Creditors EvaluateYour Credit Report?

Don’t Be Late• Having a history of late payments will hurt your credit rating

– The later the payment (whether 30, 60 or 90 days), the more negative your rating

Don’t Apply For Every Offer• Whenever anyone checks your credit report because of your application, an inquiry is added to

the report• Too many inquiries could count against you

– Creditors may believe you are applying for lots of credit because of financial difficulties, orthat you are potentially overextending yourself by taking on more credit obligations than youcan pay

Don’t File for Bankruptcy• Bankruptcies and charge offs – where a creditor writes off the amount you owe because of your

inability to pay – are viewed negatively• If you are in financial difficulty, try first talking to your creditors and arranging a schedule for

paying off your debt over time– For help, contact any of a number of non profit credit counseling services – check online or in

your phone directory for a counseling service near you

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Three Things You DON’T Want to Do - 1) Don’t be late paying your bills;2) don’t apply for every credit offer that comes your way (creditors maybelieve you’re in trouble and looking for a quick way out!); and 3) think very carefully before ever filing for bankruptcy

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CreditSigns of Credit Problems

ExerciseTo help you see if your creditworthiness is in danger, check off all of the following that apply toyou.

❑ I barely make ends meet with my current income❑ I rely on overtime to make ends meet❑ I put off medical and dental appointments because I can’t afford them❑ I worry that my utilities will be shut off, or that my car will be repossessed❑ I find it difficult to save❑ I use my savings account to pay my bills❑ I have had to borrow money for expenses like taxes and insurance❑ I have been denied credit❑ I took out a new loan to pay off an old loan❑ I have some skipped or late payments every month❑ I frequently overdraw my checking account❑ I get past due notices and regularly pay late fees❑ All of my credit cards are at or near their credit limit❑ I can only afford to make the minimum payment on my credit cards each month

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You Know You’re Headed for Trouble if - You’ve checked three or moreof the statements above

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CreditHow to Get on the Right Track

First, second and third – pay your bills on time. Living within your means doesn’t just feel good, ithas great financial implications. If you do find yourself slipping into serious financial difficulty,take action immediately to fix the problem:

Contact Your Creditors • Explain your situation• Ask for a reduced or delayed payment plan• Let your creditors know you are willing to pay the obligations, but don’t make promises you

can’t keep• Most creditors will work with you if you give them a realistic payment plan and follow through

as promised

Get Outside Help• Find a professional non profit credit counseling service to help you:

– Organize your finances– Set up a realistic budget– Understand the wise use of credit

• The National Foundation for Credit Counseling (www.nfcc.org or (800) 388-2227) can help– They will give you the address and phone number of the Consumer Credit Counseling Service

closest to you– CCCS is a non profit organization that offers confidential counseling and helps create a debt

management plan for a small fee

Beware of Fee Based Credit Repair Clinics• The Federal Trade Commission (FTC) cautions consumers about these companies• Remember: Credit repair clinics cannot do anything for you that you cannot do yourself for FREE.

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Four Ways to Improve Your Creditworthiness

1. Pay off your past due accounts2. Bring past due accounts up to date and keep them that way 3. Close unused accounts4. Write a brief explanation (such as unemployment) if you’ve had

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CreditYour Overall Credit Picture

Creditors look for ways to help them predict your future credit behavior. They want to:

• Understand their financial risk if they decide to give you credit• Make good business decisions on each application for credit

Your Credit Information + Your Creditor’s Judgment = Your Credit Approval orDenialEach creditor decides how much risk it can afford, and bases its final credit decision on:

• Your overall credit picture• The amount of credit you are requesting• Details of the transaction

– Such as the cost of the vehicle and how much money you are putting down

Weak Credit on Your Own? A Co-Signer May HelpA creditor may allow you to have a co-signer (such as a spouse or parent) sign the finance contractwith you in order to make up any credit weakness.

• The creditor will evaluate your co-signer’s and your creditworthiness both individually andcombined

• This may be necessary for you to obtain the credit you are applying for• Note: A co-signer needs to know that he/she assumes equal responsibility for the contract, and

the account history can be reflected on the co-signer’s credit history as well.

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CreditIf You Are Denied Credit

Under the Equal Credit Opportunity Act

• You must be notified within 30 days after your application has been completed whether yourrequest for credit has been approved or not

• If credit is denied, you must be notified in writing– Specific reasons must be given or you must be told of your right to ask for an explanation

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What to Do if You Are Denied Credit - First, be sure to find out why. Thatoften means asking for an explanation when you receive notification. Itmay be something simple (like not being employed or living long enoughin the community), or it may be that you have too many outstandingdebts. The key: find out so that you can know what to do in the future toget approved.TIP

CreditConsumer Protection Laws

The following is a summary of the federal consumer protection laws relating to credit. Your statemay also have similar laws

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Equal Credit OpportunityAct

Credit Practices Rule

Fair Debt CollectionPractices Act

Fair Credit Reporting Act

• Prohibits discrimination related to credit because of yoursex, race, color, marital status, religion, national origin or age

• Also prohibits discrimination related to credit if you arereceiving public assistance or that you have exercised yourrights under the Federal Consumer Credit Protection Act

• Requires creditors to provide a written notice to potentialco-signers about their liability if the other person fails to pay

• Prohibits late charges in some situations• Prohibits creditors from using certain contract provisions

that the government found to be unfair to consumers

• Prohibits debt collectors from using unfair or tricky practicesto collect overdue bills that your creditor has forwarded forcollection– This does not apply to banks or other businesses

collecting their own accounts, although some states havesimilar laws that do

Gives you the right to know what information is beingdistributed about you by credit reporting agencies

CreditConsumer Protection Laws

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FACT Act

Truth in Lending Act

Fair Credit Billing Act

• Update to Fair Credit Reporting Act• Addresses problems of identity theft, consumer privacy and

inaccuracies of the consumer credit reporting system• Provides consumers the right to one free credit report each

year• Allows consumer to call one number to notify credit reporting

agencies and credit card companies of identity theft

• Requires creditors to give you written disclosures of importantterms of the credit agreement, such as:– APR– Total finance charge– Monthly payment amount– Payment due dates– Total amount being financed– Length of the credit agreement– Any charges for late payment

• Establishes the process for resolving billing errors on yourcredit card accounts

CreditConsumer Protection Laws

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Consumer Leasing Act(CLA)

• Requires the leasing company (for example, a dealership),to disclose certain information before a lease is signed,including:– The total amount of the initial payment– The number and amounts of monthly payments– All fees charged– The charges for default or late payments

• For vehicle leases, the lessor must also disclose:– The annual mileage allowance– Charges for excess mileage– Whether the lease can be ended early– Whether the leased vehicle can be purchased at the

end of the lease– The price to buy at the end of the lease– Any extra payments that may be required at the end of

the lease

CreditReview regarding Credit

Answer the following questions as a review on Credit.

1. Why is it important to maintain a good credit history?a. Because your family will inherit it, and it’s important to plan for their future

b. Because anyone can access your credit history at any time to learn about you

c. Because a good credit history can generally help you negotiate for a lower finance rate

d. Consumer protection laws state it is your responsibility to maintain good credit

2. What might happen if you fail to make several payments on purchases that you made ayear ago?a. The item(s) can be taken away from you, if the item(s) secured the credit obligation you

took on when you bought the items

b. Negative information may be added to your credit report

c. You could be denied credit in the future

d. All of the above

3. How can you find what your credit history looks like?a. Contact a credit reporting agency

b. Ask a private investigator to find out all they can about you

c. Look yourself up on the Internet

d. Check your family’s credit history

4. Which of the following is not something a creditor will look at before granting you credit?

a. If you pay your bills on time

b. Where you live and your living arrangements

c. How many credit obligations you have

d. How much you owe on all your accounts

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1.C 2.D 3.A 4.B

(ANSWERS DISPLAYED UPSIDE DOWN)

CreditReview regarding Credit

True or False

5. If you dispute information on your credit report, you can add a consumer statementexplaining the circumstances.a. True

b. False

6. If you can’t make your car payment, it’s best to wait until the next month to catch up on thepayments.a. True

b. False

7. If you are denied credit, the creditor is not legally required to explain why.a. True

b. False

8. When creditors evaluate your income, they can’t legally refuse to consider income frompublic assistance in the same manner as other income.a. True

b. False

9. Your credit report is available to anyone, regardless of the reason.a. True

b. False

10. A creditor can deny your credit based on your marital status.a. True

b. False

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5.A 6.B 7.B 8.A 9.B 10.B

(ANSWERS DISPLAYED UPSIDE DOWN)

CreditBudget – The Key to LivingWithin Your Means

The best way to ensure you build and maintain good credit is to live within your means. And theeasiest way to do that is to budget wisely.

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Know Your Monthly Budget - Then you will know how much you canafford to spend on any big ticket item like a car or home

What You Need to Know About BudgetingThe budget part of this section covers basic information about:

• How to create a budget• What the parts of a budget are• How car expenses affect your monthly budget• How to find a vehicle that fits your budget

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CreditKey Terms that apply to Budget

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Budget:

Down Payment:

Types of Expenses:

Types of Income:

Tool commonly used to measure expenses against income.A written plan that helps people manage their money.

Initial payment, usually a large amount, used to reduce theamount financed.

Fixed Expenses: Expenses due at a particular time or on aregular schedule. These expense amounts remain the same orchange according to a known schedule (for example, rent orcar payment).

Flexible Expenses: Expenses that occur by choice and aresubject to change (for example, hobbies and entertainment).

Variable Expenses: Expenses that take place on a regular basisand are consistent and predictable, but the amounts change(for example, utilities and credit cards).

Gross Income: Total amount of money earned before anytaxes and payroll deductions are subtracted

Net Income: Gross income minus taxes and payrolldeductions; your take-home pay.

Bi-Weekly Income: Payment every two weeks (for example, every other Friday).Semi-Monthly Income: Payment twice a month, such ason the 15th and the 30th.

CreditA Budget Helps Keep You on Track

A budget allows you to analyze:

• How much money is coming in• How much money is going out• How much is left over for major purchases, like a new or used vehicle

Generally, we consider net income when working on a budget.

• Net income, or take-home pay, is the amount of money you actually receive in your paycheckafter taxes and any other deductions (such as Social Security, health care and Medicare) aresubtracted from your paycheck

• Other income that may factor into your budget includes interest from a savings account, cashgifts, tips, bonuses and child support.

How to Calculate Your Net Monthly IncomeSimply apply the following formula, depending on how often you are paid:

• If weekly, multiply your take-home pay by 52 and divide by 12• If bi-weekly, multiply your take-home pay by 26 and divide by 12• If semi-monthly, multiply your take-home pay by 2

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CreditHow to Create a Budget

Figuring out how much money comes in is pretty easy, but figuring out how much you spendmight take a little effort.

First, Collect All Your Bills This includes your credit card statements, your checkbook register, and receipts for gas, groceriesand anything else you buy with cash, check or a debit card.

• Don’t forget about items that are billed less regularly, such as taxes or insurance• If you don’t keep receipts for some of the items listed you may have to wait a month or two

while you collect the bills required– Use a notebook to make sure you record every receipt– Or use a money management program on a computer

Use this Budget Checklist❑ Mortgage or rent statement❑ Checkbook register❑ Car payment book or statement❑ Receipts for gas, groceries, childcare, etc.❑ Utility bills (light, heat, water)❑ Insurance statements❑ Credit card bills❑ Savings passbook or statement

The Three Types of ExpensesExpenses can be divided into three categories:

• Fixed expenses• Variable expenses• Flexible expenses

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Did You Know? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?Not all budget items are equal:• Fixed budget items are the same each month (such as your mortgage) • Variable items change each month (like your phone bill) • Flexible items are often controlled by your willpower (such as whether you go to a movie

on the weekend, and how much you spend there)

CreditHow to Create a Budget

What Paying Yourself First MeansAlmost every financial advisor recommends paying yourself first when creating a budget.What paying yourself first means is to:

• Decide on an amount – say 5% or 10% – of your take-home pay• Deposit the money into a savings account

– If your employer has an automatic savings deduction program, all the better – it’s harder tospend what you can’t see

By paying yourself first you get an orderly way to make your money grow – and that can really payoff in the long run!

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Did You Know? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?When you know what expenses are needed versus what expenses are for wants, you’ll be ingreat shape to make budget adjustments – as necessary – to help save for the car or homeof your dreams.

Saving Adds Up - Why save? For emergencies (most financial plannersrecommend you have at least six months’ worth of living expenses setaside). Saving will also help you reach any special goals you may have butmaybe never had the money to achieve – such as saving for the downpayment for a new car or homeTIP

CreditFinding a Vehicle ThatFits Your Budget

It’s fun to window shop for the car of your dreams by driving past the dealership or just seeingyour dream car pass by. Before you get too excited about any car in particular, however, youshould determine whether or not you can afford to get behind the wheel. The best way to dothat is to figure out how a car payment might impact your budget.

Research the Vehicle You’re Most Interested InAlong with reviewing your finances, you’ll also want to research the type of car or truck you areinterested in.

• Check out car or truck buying guides• Visit sites on the Internet• Drive by a dealership and see what’s on the lot

– Dealers often equip their vehicles with popular options most people want• A certain number are usually minimally equipped, the majority are nicely equipped, and a

few are loaded• Note: Prices may vary rather substantially between minimally equipped and loaded

vehicles.• Read your local newspaper ads

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Size of Your Car Payment - Generally, your car payment should be nomore than 15% to 20% of your take-home pay after first subtractingmonthly payments such as credit cards and home equity loans

Extra Car Costs to Consider - Gas, maintenance and insurance could costyou an additional $200 a month or more. Be sure to consider all costswhen budgeting for your dream car

Always Read the Details - When looking at ads, be sure to read the details, soyou’re clear on what’s being advertised, including all the finance or leaseterms, down payment required and any additional charges

Getting a car or truck is certainly an exciting time – and being prepared can help you get what youwant, live within your means and avoid serious credit problems that can occur if you overspend.

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CreditReview regarding Budget

Answer the following questions as a review on Budget.

1. Net income is also known as:a. Taxable income

b. Alimony

c. What’s left after you pay your bills

d. Take-home pay

2. Which of the following apply to variable expenses?a. Take place on a regular basis

b. Consistent and predictable

c. The amounts change

d. All of the above

3. About how much of your monthly take-home pay should your car payment not exceed aftersubtracting certain monthly expenses, like credit cards?a. 5% to 10%

b. 10% to 15%

c. 15% to 20%

d. 20% to 25%

4. In addition to vehicle payment, what other vehicle expenses should be considered in yourmonthly budget?a. Insurance

b. Maintenance

c. Gasoline

d. All of the above

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1.D 2.D 3.C 4.D

(ANSWERS DISPLAYED UPSIDE DOWN)

CreditSample Budget Worksheet

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If your income is not enough to cover your expenses, you should probably change your spending plan bydeciding which expenses can be decreased or what you can do without.

© 2005 GMAC. All rights reserved

CreditConsumer Resources

For Credit InformationThe Federal Trade Commission enforces a number of credit laws and provides consumers with freeinformation regarding credit regulations and consumer protection issues. You can file a complaintwith the FTC by contacting the Consumer Response Center toll free at (877) 382-4357. For moreinformation, visit their website at www.ftc.gov.

For more information on federal credit regulations and consumer rights, contact the FederalReserve System at (202) 452-3693, or visit their website at www.federalreserve.gov.

Some state laws may provide you with additional rights. For information on these laws, contactyour state’s consumer protection agency or attorney general’s office.

For More Information on Credit Reports – Websitesmyfico.com/CreditEducationftc.gov/bcp/conline/edcams/credit/coninfo_reports.htm

For Budget InformationThe American Financial Services Association Education Foundation offers publications that youmay find useful. For example:

• Consumer Budget Planner• The Consumer’s Almanac

Go to www.afsaef.org or call toll free (888) 400-2233 to order these publications. A small fee maybe required.

Helpful Budget Websites• AFSA Education Foundation: www.afsaef.org• GMAC Financial Services: www.gmacfs.com• The Jump$tart Coalition for Personal Financial Literacy: www.jumpstart.org

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