Financial Literacy Club
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Credit & Debt · Lesson 7
Borrowing Responsibly
Part A. Vocabulary
Define each term in your own words.
Debt-to-income ratio (DTI)
Part B. Guided notes
Fill in each blank using the word bank.
Word bank: afford · payment · payments · snowball
- Ask: need it now? Can I it? Total cost? What if things change?
- DTI = monthly debt ÷ gross monthly income.
- Avalanche saves the most money; builds momentum.
- Call your lender before you miss a .
Part C. Check your understanding
Circle the best answer.
You owe $800 on Card A at 24% APR and $2,000 on Card B at 15% APR.
1. Using the avalanche method, which card gets your extra payments first?
- A. Card B, because the balance is bigger
- B. Card A, because it has the higher APR
- C. Split it evenly
- D. Neither — pay only the minimums
Your gross income is $3,000 a month. Your car payment and student loan payment total $600 a month.
2. What's your debt-to-income ratio?
- A. 5%
- B. 50%
- C. 20%
- D. 60%
3. The snowball method always saves the most money.
True/False
You realize you won't be able to make next month's car payment.
4. What's the best first step?
- A. Call the lender now, before you miss it, and ask about options.
- B. Ignore it and hope for the best.
- C. Take out a payday loan to cover it.
- D. Stop answering the lender's calls.
Part D. Apply it
Show your work.
1. Your monthly debt payments total $450 and your gross monthly income is $3,000. What's your debt-to-income ratio?
2. Which payoff method saves the most interest, and which builds momentum with quick wins?
Part E. Think about it
Answer in complete sentences.
1. Is student loan debt "good debt"? When might it not be?
2. Why do you think the snowball method works for so many people, even though it costs more?
Exit ticket
Name
What should you do if you know you're going to miss a payment?