Financial Planning: Credit Cards

American Debt The median credit card debt is about $2,000 This means 50% of Americans have less than $2,000 in credit card debt and the other 50% of Americans have more than $2,000 in credit card debt.

Average American Income Less than 9th grade education: $20,000 High school graduate: $32,000 Bachelor’s Degree: $57,000 Professional Degree: $120,00 http://www.buzzle.com/articles/average-american-income.html

College Students & Credit The average age at which a U.S. consumer gets their first credit card is 21 84% of college students have credit cards The average undergraduate student has $2,200 in credit card debt The average college graduate has $4,100 in credit card debt The average college graduate has nearly $20,000 in debt

Financial Management Training 84% of undergraduates indicated they needed more education on financial management topics. In fact, 64%would have liked to receive information in high school (Source: Sallie Mae, "How Undergraduate Students Use Credit Cards," April 2009)

How Long Would It Take? Pretend you owe $9,000 to your credit card company If the interest on your credit card is 18% The minimum payment is $135 per month. How long would it take to pay off the $9,000 debt and finance charges?

How Long Would It Take? Trick question! You will NEVER pay off the $9,000 debt paying the minimum payment of $135 per month. Do the math: $9,000 x .18 = $1,620 finance charge. $1,620 divided by 12 = $135 per month

Statistics The average interest rate is about 14.98% A.P.R. (Annual Percentage Rate) As of 2008, the average number of credit cards Americans have is 3.5 The average credit card debt per borrower in the U.S. is $4,996 in 2012

The Cost of Time Let’s say you owe $3,000 on a credit card with a 15% interest rate If you make the minimum payment of $75, it would take Over 4 ½ years to pay off your credit card!

Credit Card Debt Illustration http://www.youtube.com/watch?v=Vz05A6cP6Iw Running Time 3:24

Credit Scores The FICO score is one such popular scoring method. Its scale runs from 300 to 850. The vast majority of people will have scores between 600 and 800. A score of 720 or higher will get you the most favorable interest rates on a mortgage

Breakdown of Credit Scores

What Makes Up Your Credit Score?

Read Your Statement Carefully Look for errors. Write your credit card company immediately. Has your interest rate been increased? Check your balance. Know what you owe

Credit Card Tips Pay on time. Late payments negatively affect your credit score. There may be fees for late payments. Avoid cards with annual fees.

Credit Card Tips Ask yourself, “Do I really need this?” Make more than the minimum payment Avoid reaching the credit card limit. Keep a portion of your credit limit for emergencies Late fees may also put you over your credit limit and raise your rates

Ignore the Free Checks They aren’t free. They are almost the same as a cash advance. Interest accumulates immediately

Say No to Skip Payments Usually occur before or after holidays Interest is still being added to your balance

Reject Offers to Increase Your Credit Line Increasing your credit line is like having a whole cake in front of you to eat instead of a small piece. Small Credit Line Large Credit Line

Stop Using Credit Paying off your balance is difficult if you keep adding to it. Use your debit card or cash instead

Reduce the Interest Rate If you have a long history with the credit card company and have made payments on time, call and ask for a rate reduction

Transfer Your Balance Transfer your balance to a credit card with a lower interest rate*. *be careful about introductory rates

Credit Cards Rules of Thumb Never borrow more than 20% of your annual net income (after taxes) For example, if your annual net income is $9,600, you should not have a debt load more than $1,920 Your monthly debt payments should never be more than 10% of your monthly net income.

Credit Cards Can Be Good Establishes credit history - Helpful in the future when you go to buy a house or a car Some credit cards give you cash back You can borrow money for free if it is paid back in full in 30 days!

Credit Cards Safety Tips Don’t let anyone use your card Instead of signing the back of the card, write “Check I.D.” Check your credit scores at least once a year to check for errors. It is free (once a year)

What are Fees? Fees are how credit card companies make money off of you. Some of the most common fees include: Application fee Annual fee Cash advance fee Going over your credit limit Late fee Finance charge (interest) Returned check fee

Building Credit as a Teen At age 18, become an authorized user on your parent’s credit card and stay on it until you turn 21 (only if they have good credit). At age 21, apply for your own credit card (if you have a job). Pay the full amount owed on the credit card every month. Don’t carry a balance over 30% of your credit limit (Example: If your credit limit is $1,000, don’t have a balance over $300.) https://www.bankofamerica.com/credit-cards/products/secured-credit-card/

Sample Credit Card Offer

How to Drive Free Cars for Life https://www.youtube.com/watch?v=BKyV8CTHeJ0 Running Time 5:35

Request Copies of Your Credit Report www.annualcreditreport.com www.experian.com www.transunion.com www.equifax.com