C.A.R.E.

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C.A.R.E.

• Credit Abuse Resistance Education
• A program of
• U.S. Bankruptcy Courts of West Virginia
• The West Virginia State Bar
• The WV Bankruptcy Law Committee

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(No Transcript)
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Credit Card Issuer
Uneducated consumer
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Presentation Overview

• Different card types
• Using cards wisely
• Choosing best card for you
• Your credit rating
• Consequences of credit abuse
• Avoiding credit problems

• BEWARE!

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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

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Why Do We Need This Discussion?

• People under age 25 are one of the 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

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What is Credit?

• Credit is the ability to borrow money
• Borrowing is the creation of debt
• Debt is what you owe

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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 cant afford it using credit.
• Using credit means paying for todays purchases
  with tomorrows income.

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Reasons for Having a Credit Card

• Emergencies
• Establish a credit history
• Identification
• Safety
• Large purchases (necessities)
• Facilitate other transactions

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Types of Cards

• Debit Cards
• When used, money is drawn directly from your bank
  account, just like writing a check
• Beware If there is no money in the account, you
  can still become overdrawn and incur penalties.
• Debit cards do not extend credit

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Types of Cards

• Charge Cards
• Issued by retail stores to be used exclusively at
  that particular store (such as Macys, Best Buy
  or Sears)
• If a balance is carried from month to month, the
  interest rate is usually higher than other card
  issuers

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Types of Cards

• Credit Cards
• Involves the extension of credit by the card
  issuer
• Credit cards are accepted at almost any store
• If a balance is carried from month to month,
  interest rates are set forth in the cardholder
  agreement

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Choosing a Card

• Annual Fee
• Interest Rate
• --Introductory
• --Balances v. Cash Advances
• --Fixed v. Variable
• --Default Interest
• Grace Period
• Method of Computation
• Rewards

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What is Interest?

• Interest is the amount that a lender charges to
  borrow money
• The higher the interest rate, the more money you
  pay
• Interest rates vary from company to company
• 18 - current avg. starting interest rate for
  students and young adults

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Costly to Maintain a Balance

• The average American consumer has over 10,000
  in credit card debt
• At an average of 14, they pay 117 a month in
  interest alone
• If they could invest that 117 every month of
  their work life, it would grow to 307,103 (7
  return)

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Making the Minimum Payment

• Sometimes people think they are handling their
  debt by making the minimum payment

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The Minimum Payment vs. a Fixed Minimum Payment

• There is a BIG difference between making the
  Minimum Payment each month versus (4 of the
  principal balance) making a Fixed Minimum Payment
  each month (a fixed set amount, for example 300).

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The Minimum Payment

• For many years it was 2 of the balance. On most
  cards that was just ½ (.5) going toward
  principal with the rest paying the interest owed.
  It seemed like you were paying forever.
• Now a minimum payment is 4 of the balance, which
  makes the minimum payment higher (double) but
  balance goes down faster. Now it only takes
  almost forever.

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Paying the Minimum on 2000with a 31 Interest
Rate
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Paying the Minimum on 2000with a 18 Interest
Rate
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Paying the Minimum vs. Paying a Fixed Minimum

• On 2000 at 18 paying
• the Minimum
• (4 of the balance)
• It will take 15.6 years (187 months) at a total
  cost of 3,115.69 (including 1,115.69 in
  interest)

• On 2000 at 18 paying
• a Fixed Minimum of 80 per month
• It will take 2.6 years (31 months) at a total
  cost of 2477.99 (including
• 477.99 in interest)

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Cash Vs. Credit
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Comparing Loans
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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 charge
• Negative info reported for 7 years bankruptcy
  for 10 years

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What is so importantabout Good Credit?

• Your history of payments, employment, and salary
  makes you a good candidate for a loan
• You can get a better interest rate lower
  payments
• You will be viewed as financially trustworthy
  better loan terms
• May help you rent an apartment and obtain
  employment most landlords and prospective
  employers will look at your credit report

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Consequences of Credit Abuse

• Make it impossible to complete degree
• Denial of employment
• Denial of credit
• Higher interest rates
• Bad credit rating

• Higher insurance rates
• Denial of a lease
• Denial of student loans
• Emotional stress
• Bankruptcy
• Divorce/family problems

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Seven Steps to AvoidCredit Abuse

• Step 1
• Distinguish between needs and wants

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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
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Avoid Credit Abuse

• Step 3
• Pay off your balance
• each month

A Good Way to Do This Dont charge anything
unless there is already money in the bank to
pay for it.
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Avoid Credit Abuse

• Step 4
• Never make only the minimum payment

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Avoid Credit Abuse

• Step 5
• If you must carry a balance
• monitor it each month

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Avoid Credit Abuse

• Step 6
• Make a monthly budget and follow it

Think of it as your Personal Financial Survival
Guide
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What is a Budget?

• A conscious plan to account for your money.
• Pay needs first, wants second.

EXPENSES Rent 480 Utilities
120 Food 240 Transportation
160 Installment Payments 360 Insurance
120 Clothing 20 Laundry
20 Recreation
40 Misc. Expenses 40 Total Expenses 1,600

• INCOME
• Gross wages 2,000
• Payroll deductions (400)
• Net monthly pay 1,600

This budget does not include cost of medical
deductible or co-pay day care student loans
or revolving debt (credit card interest) payments.
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Avoid Credit Abuse

• Step 7
• Use cash or a debit card whenever possible

Two Personal Rules

• Dont use a credit card for any
• purchase less than 10

If you can eat it or drink it, dont charge it
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Hours of Work to Pay Interest on 1000 Debt
Interest Rate
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Simple Rules to Remember

• Have a budget and live within it
• Dont have more than one credit card
• Shop around and get the best deal
• If you can eat it, drink it, or it costs less
  than 10, dont charge it
• Use a debit card, check or cash whenever possible
• Pay off the balance every month
• Never make just a minimum payment
• Understand the difference between needs and
  wants
• SAVE!!!!!

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How Much Could I Save?

• If you take 2,000 and invest it together with
  38.45 every week (2,000/year) until age 60, at
  a 7 return, you have.......

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470,074.22

• And if the same investment
• made 10 interest, you
• would have.

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1.16 Million!!!