DEBT TRAPS

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DEBT TRAPS

• HOW TO AVOID THEM

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Learn the Lingo

• Interest
• Annual Fee
• Grace Period
• Fees for Exceeding the Credit Limit
• Cash Advance Fees

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Finance Charge

• Adjusted Balance - the payment is subtracted
  before the finance charge is figured. This is
  the least expensive method.
• Previous Balance when an account is not paid in
  full, the finance charge is based on the balance
  at the beginning of the billing period.

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Finance Charge

• Average Daily Balance the average for the
  unpaid balance for each day of the billing period
  is totaled and divided by the number of days in
  the billing cycle.
• Double Cycle Billing when a balance is carried
  over, the interest is calculated on the average
  daily balance on the first bill and the interest
  on all new charges you make. Since new purchases
  are added, you lose the grace period. This method
  costs you the most.

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Avoiding Credit Card PitfallsNewsweek, Tuesday
August 22, 2006

• Your credit card issuer can change the terms of
  your agreement at any time with as little as 15
  days notice. You can opt out of the changes,
  but your account will be closed, which can hurt
  your credit score.
• If youre late on a payment to another creditor,
  your credit card company can raise your interest
  rate.
• Youre credit score has become a vital statistic
  when it comes to applying for credit, and it can
  be widely shared. Make sure your credit report is
  accurate, and dispute any errors with the credit
  bureaus.
• There is no limit on the fee a credit card
  company can charge you. The average fee today is
  in excess of 30.
• There is no federal limit on the interest rate
  you can be charged for credit card purchase. Some
  default rates are as high as 31.

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Avoiding Credit Card PitfallsNewsweek, Tuesday
August 22, 2006

• It is possible to negotiate a better interest
  rate, and it never hurts to ask. If they refuse,
  you can probably tranfer your balance to a card
  that offers a lower interest rate.
• Most lenders prefer a debt-to-income rato of at
  or below 36. Try to keep your credit card
  balances low, and dont max out any one card.
• Specialty cards (i.e. department store) and
  rewards cards generally carry a higher interest
  rate than regular credit cards.
• One late payment can result in a drop of up to
  100 points in your credit score, so make sure
  your payments are on time, every time.
• If you need help dealing with debt, get it before
  the problem gets out of hand.

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Paying the Minimum

• Credit Card Balance 2,300
• Interest Rate 18
• Minimum Payment (2.5) 57.5

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Payoff

• 236 Months
• Total Payments 5,365.37

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Example 2

• One Time Charge 500
• Interest Rate 15
• Monthly Charges 100
• Monthly Payment 50
• At the end of 1 year Balance of 3,544.80

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Example 3

• One Time Charge 500
• Interest Rate 15
• Monthly Charges 50
• Monthly Payment 50
• At the end of 1 year Balance of 3,190.24

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Use Credit Wisely

• Overspending on Credit
• Paying only the minimum
• Purchasing Unnecessary Credit Card Services
  Products
• Chasing Lower Rates

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Credit Card Advantages

• Frequent Flyer Miles
• Reward Points
• Cash Back
• Credit Score

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NEGOTIATE !
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Identity Theft

• More than 27 million Americans have been victims
  of identity theft in the last five years To deal
  with the problem consumers reported nearly 5
  billion in out of pocket expenses.
• - The New York Times

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Identity Theft

• This year alone more than 500,000 Americans will
  be robbed of their identities with more than 4
  billion stolen in their names.
• -CBSnews.com

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Identity Theft

• Experts report that a victim can spend
  anywhere from six months to two years recovering
  from identity theft.
• -CNNfn.com

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Protect Your Identity

• Telemarketing
• Register for the Do Not Call list at
  www.donotcall.gov or call 1-888-382-1222
• Mail
• Opt-out of receiving direct mail marketing
  from many national companies for five years by
  writing to
• Direct Marketing Association
• Mail Preference Service
• PO Box 643
• Carmel, NY 10512

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Know Your Credit Report
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Free Credit Reportwww.annualcreditreport.com
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Credit Score Formula (approximate)

• 35 of the score is based on your payment
  history.
• 30 of the score is based on outstanding debt.
• 15 of the score is based on the length of time
  you have had credit.
• 10 of the score is based on the types of credit
  you currently have.

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Credit Report

• Not just for loans

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Financial Institutions

• Banks
• Credit Unions
• Savings and Loans
• Investment Companies and Brokerage Firms

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Banks

• are for-profit companies whose objective is to
  make money for their shareholders. Money you put
  in a legitimate bank is insured, up to 100,000
  by the FDIC.

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Credit Unions

• are non-profit associations of individuals and
  their families who share a common bond. Most
  credit unions are insured up to 100,000, as are
  banks but by the National Credit Union Share
  Insurance Fund.

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Savings and Loans

• are for-profit institutions that have man of the
  savings products that your local bank has and
  many of the services. The Federal Savings and
  Loan Insurance Corporation will insure your SL
  deposit account up to 100,000.

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Investment Companies and Brokerage Firms

• are for-profit companies that offer some banking
  services, but they are usually only available in
  conjunction with investment products such as
  stocks, bonds, and mutual funds. The Securities
  Investors Protection Corporation insures up to
  100,000 in cash and 400,000 in securities
  against the failure of your brokerage company
  (not the failure of your investments).

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Wall Street Journals Guide to Understanding
Personal Finance
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QUESTIONS ?