Transcript Kansas-Missouri Presentation

C.A.R.E.
Credit Abuse Resistance Education
A program of:
U.S. Bankruptcy Court, Western Missouri & Kansas Districts
The Kansas City Bankruptcy Bar Association
University of Missouri Extension Service
Why ?
 People under age 25 are fastest growing group
of bankruptcy filers
 One out of five young adult households are in
debt hardship (over 40% of income goes to
debt payments each month)
 In last decade, youngest adults (18-24) saw
credit card debt increase 104%
 Graduating college students average $20,402 of
debt-- $3,262 on credit cards
 Individuals seeking credit counseling have
average annual salary of $29,425; average debt
excluding mortgage or rent of $23,184
Credit Education Badly Needed
68% teens report never discussing
responsible credit card use with any
family member
31% teens, 18-19, have credit card
in own name
71% of young adult card holders
revolve their balances compared to
55% of all cardholders
Presentation Overview
 Different card types
 Using cards wisely
 Choosing best card
for you
 Your credit rating
 Consequences of
credit abuse
 Avoiding credit
problems
Make the Credit-Money
Connection
$ When you pay by credit
card, you still have to
pay for the purchase
with “real” money.
$ If you cannot afford to
buy something with
cash, you likely can’t
afford it using credit.
$ Using credit means
paying for today’s
purchases with
tomorrow’s income.
Reasons for Having a
Credit Card
1.
2.
3.
4.
5.
6.
Emergencies
Large purchases (necessities)
Establish a credit history
Facilitate other transactions
Identification
Safety
Types of Cards
Debit
Charge
Credit
cards
cards
Choosing a Card
Annual Fee
Interest Rate
--Introductory
--Balances v. Cash Advances
--Fixed v. Variable
--Default Interest
Grace Period
Method of Computation
Rewards
Costly to Maintain a Balance
$ In 2001 average family carried a
balance of $7000; now up to $9200
$ At 20% interest, pay $153 a month in
interest alone
$ That’s $73,440 from age 25 to 65 that
could be used for other things
$ If you saved/invested the $153
instead – at 5% return equals
$233,481; at 7% it would be $401,600
Making the Minimum
Payment
Sometimes people think they
are handling their debt by
making minimum payment
Minimum Payment
$ For many years it was 2% of the
balance. On most cards that was just
.5% going toward principal with the
rest paying interest
$ Now minimum payment will be 4% of
the balance. Makes minimum
payments higher (double) but balance
will go down faster
Paying the Minimum on $2000
Amount
Paid
Years to
Pay Off
Total
Interest
Paid
Total
Purchase
Cost
Minimum
Payment of 2%
(not below $15)
New Minimum of
4% (not below $15)
23
8.2
$4,069.93
$1,073
$6,069.93
$3,073
Cash v. Credit
Store A
Store B
Store C
Cash Price
$379
$388
$410
APR
Number of
Monthly
Pmts.
Monthly
Pmt.
Finance
Charge
Amount
Repaid
27%
12
13%
12
12%
12
$36.25
$35.00
$36.50
$56.00
$32.00
$28.00
$435
$420
$438
Comparing Loans
Lender 1
Lender 2
Credit Union Dealership
Amount of Loan
Lender 3
Bank
$4,200
$4,200
$4,200
Monthly Pmt.
$192.84
$110.60
$135.05
Number of
Pmts.
Total Repaid
24
48
36
$4,628.16
$5,308.80
$4,861.80
$428.16
$1,108.80
$661.80
9.5%
12%
9.75%
Finance Charge
APR
Your Credit Report
 Not everyone has a
credit report
 Getting started can
be a Catch 22
 Found at three
national credit
reporting agencies
 Limitation of who
can see your credit
report
 Contains extensive
information
 Negative info can
result in credit
denial or higher
interest
 Negative info
reported for 7 years;
bankruptcy for 10
years
Consequences of Credit
Abuse
Make it
impossible to
complete degree
Denial of
employment
Denial of credit
Higher interest
rates
Higher insurance
rates
Denial of a lease
Denial of student
loans
Emotional stress
Seven Steps to Avoid
Credit Abuse
Step # 1
Distinguish between
needs and wants
You Fail When:
You sacrifice what you want
most for what you want now!
Avoid Credit Abuse
Step # 2
Have only one credit card
To Further Control Your
Credit Use:
Opt for a low credit limit on
your one card
Avoid Credit Abuse
Step # 3
Pay off your balance
each month
A Good Way to Do This:
Don’t charge anything unless
there is already money in the
bank to pay for it.
Avoid Credit Abuse
Step # 4
Never make only the
minimum payment
Avoid Credit Abuse
Step # 5
If you must carry a balance
monitor it each month
If you find you are getting
deeper in debt:
Stop digging the hole!
Avoid Credit Abuse
Step # 6
Make a monthly budget
and follow it
Don’t Like the Word
“Budget”?
Think of it as your
“Personal Financial Survival Guide”
Avoid Credit Abuse
Step # 7
Use cash or a debit card
whenever possible
Two Personal Rules
$ Don’t use a credit card for any
purchase less than $10
$ If you can eat or drink it, don’t
charge it