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Consumer Credit: Education Is the Key to Safe Borrowing

By William H. Neukom, President, American Bar Association

April 22, 2008

The vast majority of people borrow money to be able to live the American dream- to do important things such as finance a child’s education, purchase a home or buy a car. But how many Americans really know what they are getting themselves into before they sign on the dotted line?

As the current subprime mortgage crisis attests, what we don’t know absolutely can hurt us when it comes to borrowing money. Loan documents are binding legal contracts that can expose individuals and families to escalating obligations they are unable to meet. The time to understand the risks and obligations of consumer credit is before you make a commitment.

To help you improve your financial literacy, the American Bar Association is launching, an online resource offering free information relating to automobile lending, student loans, home finance and credit card products and providers. Consumer credit touches most Americans’ lives every day, and this site provides the tools needed to make wise financial decisions.

This online resource is valuable not just to individuals and their families, but to lawyers too, by giving them an important counseling tool. As lawyers know from experience, often the best service we can offer is to help people stay out of trouble—before they get into it.

Education really is the key to protection. Understanding the consumer credit options out there is a start; knowing potential warning signs is crucial.

For example, a student may be more likely to shop around when searching for a student loan if he or she knows what to look for. By the same token, a single mother who is considering refinancing her mortgage with the promise of a lower monthly payment may be able to avoid a potentially dangerous financial situation by identifying red flags.

Often, legal documents can be intimidating unless they are clearly explained. At, key legal terms are defined, such as “good faith estimate,” “Truth in Lending Disclosure Statement,” “APR,” and “average daily balance method,” to help you understand your rights and responsibilities.

This need for caution among consumers is more important than ever, as the economy falls under greater strain. As gas prices continue to soar, foreclosures multiply and jobs are in jeopardy, the burden is even greater not to overextend one’s credit.

A worsening economy shouldn’t discourage any American from pursuing his or her own dream. But it should make consumers cautious when it comes to personal finances and motivated to understand the complexities of consumer credit.

NHLAP: A confidential Independent Resource

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