8 Benchmarks for Borrowing

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8 Benchmarks for Borrowing Credit Card Act of
2009

• Financial Planning for Women
• August 2009
• Jean Lown

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September 9 FPW

• Dont give your money to Bernie outsmarting
  investment fraud
• Protect yourself, your parents, your kids

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8 Borrowing Benchmarks from Consumer Reports

• Severe recession creates debt problems
• Responsible borrowers lost jobs
• Someone you know needs this help

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Warning Signs of Excess Debt

• Relying on credit cards for daily purchases
• Using home equity line of credit to extend
  purchasing power
• Paying minimum on credit card bills
• Using cash advances to keep afloat
• Losing sleep over debts

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1. 20

• Add up
• Monthly car payment(s) (loans leases)
• Average new charges on credit cards
• Other non-mortgage debt payments
• Total should be not gt 20 of gross monthly income

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2. 28

• Monthly mortgage property taxes insurance
• Should not gt 28 of gross monthly income

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3. 36-48

• Total monthly debt (mortgage non-mortgage)
  should not gt 36 of gross monthly income
• 36-48 is really scary
• gt 48 seek help

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4. 80

• First mortgage any second mortgage or home
  equity line of credit should not gt 80 of
  propertys value
• A lower debt-to-equity ratio is better

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5. 6 points

• Low teaser rates on adjustable rate mortgages
  (ARMs)
• Most ARMs have 6 point cap
• If considering ARM, add 6 to the teaser rate and
  calculate the monthly payments
• Worst-case scenario
• If (with taxes insurance) gt 28 of gross
  monthly income dont do it!

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6. 6 months

• Need 3-6 months of living expenses in reserve for
  emergencies
• How secure is your job?
• Spouse or partners income?
• How quickly could you find a new job?
• Would you have to sell house and move for new
  job?

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7. 36 months

• Dont take out vehicle loan for gt 3 years
• Longer terms upside down
• Owe more than vehicle is worth
• Buy used instead of new
• Cars depreciate faster than they roll downhill.
  (bankruptcy researchers Sullivan, Warren
  Westbrook)

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8. Updated FICO score info

• FICO Credit Score needs to be higher to get the
  best rates.
• Median (mid point) FICO score is 723
• 760-850 needed for lowest rates
• http//www.myfico.com/

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How to Dig Out

• Assess your finances
• Add up debts
• Use PowerPay to develop a plan to repay
• Stop borrowing
• Use cash or debit card for daily expenses
• Use 1 credit card pay in full each month
• Keep 1 card in reserve in case of theft or fraud
• Call creditors before they call you.

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Credit Card Act of 2009

• Limits interest rate increases fees
• 45 day notice of rate hike
• Bans Universal default, double-cycle billing,
  retroactive rate hikes
• Info on how long to repay w/ min. payments
• Payment of gt min. must go to highest balance
• Promo rates must last at least 6 months
• Prohibits raising rates in 1st year (unless
  variable rate)
• Bills must be mailed 21 days before due
• Limits cards to applicants lt 21 years old

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Banks Response to New Law

• Tightening standards on new applicants
• Requiring more info on status
• Rejecting more applicants
• Offering lower credit limits

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Impact on Current Cardholders

• Raising rates and fees
• Switching from fixed to variable rates
• Reducing credit lines
• Closing accounts
• Good to have 2 cards
• Reducing teaser rate offers

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Future Credit Card Directions

• Era of easy credit is over. WSJ
• HH debt as of disposable income 130
• Move towards
• No-fee, no frills cards
• Premium rewards cards with annual fees
• Harder costlier to get credit
• Is this a good or bad effect?

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Check your Credit Report

• Definition
• A continuing record of a borrowers debt
  commitments and how well they have been honored.

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Free Annual Credit Report

• Obtain a free credit report once per year per
  credit bureau
• Experian, TransUnion, and Equifax
• www.annualcreditreport.com
• Ensure your report is accurate
• 3 times per year
• August Experian
• December TransUnion
• April Equifax

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Estimate your FICO Score

• Range 300-850
• http//www.bankrate.com/calculators/credit-score-f
  ico-calculator.aspx
• About FICO Scores http//www.myfico.com/Default.a
  spx
• (click on About FICO Scores near middle of
  page)

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USU Family Life Center
Housing Financial Counseling Center
493 N. 700 E. Logan at bottom of Old Main
Hill 435-797-7224
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Power Pay Debt Reduction Software

• www.powerpay.org
• Stop borrowing until debts are paid
• Make power payments
• As one debt is paid, use that to pay another
  debt rather than spending it.
• Get out of debt more quickly
• Pay less interest

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Questions? Comments?

• Dont forget to respond to email regarding the
  FPW newsletter
• Check out the updated FPW website
• Stay tuned for emailed FPW survey
• September 9 FPW Outsmarting investment fraud

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Managing Debt From Credit Cards to
Foreclosures     

• 50-minute Webcast presented by Marilyn C.
  Dimitroff, CFP
• http//register.webcastgroup.com/event/?wid077091
  3084424
• Please feel free to leave as needed
• URL is in the August newsletter