Transcript Credit and Debt
Staying on Good Terms:
Managing Credit and Debt
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Types of Credit Open End Credit Closed End Credit:
Automobile, Mortgage, and Student Loans
Short Term:
electric and phone bills
Revolving:
credit cards, and retail cards 2
The Upside of Credit Use
• • • •
Buy/consume now, pay later Establish favorable credit history Protect against fraud Cope with emergencies
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The Downside of Credit Use
•
The price of credit is high – KNOW the APR!
• •
Additional fees add to the cost Credit makes it easy to overspend
•
You are vulnerable to fraud
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College Students and Credit: What We Know
•
84%
have at least one credit card • Half have
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or more credit cards • Average outstanding balance of
$3,173
•
89%
incurred finance charges by carrying a balance • 55% of Georgia college students had debt, an average of
$17,296
; 74% of graduating seniors had debt • Parents are borrowing too Sources: Project on Student Debt, Sallie Mae 5
All Cards Are Created Equal
NOT
•
Credit
• Credit Cards • Charge Card •
Debit
• ATM Card • Check Card 6
•
Other Types of Plastic Cards
• •
Stored Value Card Smart Cards
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Credit Card Accountability, Responsibility, and Disclosure (The CARD) Act of 2009
• Restrictions on interest rate increases on existing debt • Restrictions on late fees • Eliminates universal default • Statements must go out 21 calendar days in advance of the due date • 45 day notice on rate hikes 8
http://financialtip.blogspot.com/2009/05/credit-card-reform.html
Credit Card Accountability, Responsibility, and Disclosure (The CARD) Act of 2009
• Eliminates fees for processing payments • Eliminates over-the-limit fees – Unless consumer asks for account to allow over-the-limit transactions • Rates can’t be raised for the first year after account is opened – Unless creditor uses a promotional rate • Reasonable payment allocation – Apply payments to highest rates • Mandatory 5 year life for gift cards
Credit Card Reform, Continued
• Among other provisions, those younger than 21 won’t be able to get a credit card unless: – A parent or guardian co-signs OR – The young adult can prove s/he has independent means to make payments • Permission from co-signer required to increase credit limits 10
Credit Card Reform, Continued
• Prohibits card issuers from offering freebies like food or trinkets when marketing on campus • Stops prescreened credit card offers for consumers under 21
• • • • •
Credit Myths
Once paid, bad debt will go away I’m not responsible for debts on joint accounts or co-signed accounts if they aren’t my purchases Credit is what got me into this mess Credit card companies wouldn’t send me offers if I couldn’t afford it If I don’t use credit, I won’t be able to buy anything
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Ten Credit Mistakes
1. Overspending 2. Holding too many credit cards 3. Making only minimum payments 4. Carrying a permanent balance 5. Assuming low interest rates stay the same
Ten Credit Mistakes
6. Paying a higher interest rate than necessary 7.
Paying extra for “incentive” credit cards 8. Not reading the disclosure statement 9. Paying off the wrong credit cards first 10. Ignoring extra fees or penalties
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Beware of Higher Cost Credit
• • • •
Tax Refund Loans Rent-to-Own Car Title Loans Bounced Check Protection
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Signs of Credit Trouble
•
Maxing out credit cards
•
Using one card to pay the balance on another
•
Not knowing your total debt
•
Borrowing from family members to pay debt
•
Getting frequent cash advances
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Staying Out of Credit Card Trouble
•
Shop for the credit card with the best terms. Consider: - Annual Fee - APR - Rewards Program
•
Don’t charge perishable items
•
Pay off as much as possible every month
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Pay As Much As You Can!
Balance: $3,000 Interest Rate: 18%
% of Balance Paid Each Month 2.0% Interest Time to Pay Off 4.0% 5.0% $7,930 37 years, 7 months $1,716 10 years, 10 months $1,240 8 years, 4 months 18
Timing Makes a Difference
•
Don’t buy on impulse
•
Notify your creditors if you can’t make your payments on time
•
Report lost/stolen cards immediately
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Other Credit Card Management Suggestions
• • • • •
Store your credit cards in a safe place Report lost/stolen cards immediately:
–
Fair Credit Billing Act limits liability on your credit card to $50. Track your charges Document your concerns in writing Talk to your creditor:
– –
ask them to lower your credit limit ask them to change when your bill is due
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Credit and Debt Counseling Services
• •
Budget Counseling Debt Repayment Plan
– – –
You agree to not use the cards The debt counselor may arrange for you to make smaller payments and pay less interest and fees.
–
You pay the debt counselor who pays your creditors The debt counselor will not put the repayment plan on your credit report BUT creditors may
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For individual help with serious debt problems, contact: CredAbility www.CredAbility.org
800-251-CCCS
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For more information, contact: The Peer Financial Counseling Program (insert web address, phone number, and/or e-mail) 23
Special Thanks to...
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