Make a Smart Start Toward Financial Success

Your investment of time and money in your college education is the first step in building a secure financial future. Yet, too often the financial comfort of new graduates just beginning their careers is burdened by financial missteps they made during their years in college. In today’s seminar we will talk about ways that you can avoid these missteps, making the most of your investment in college.

A College Education is a Smart Investment High School Graduate $25,000 Some College $30,000 Associate’s Degree $32,000 Bachelor’s Degree $41,000 Master’s Degree $51,000 Doctorate Degree $67,000 Professional Degree $77,000 Whether you are seeking a Bachelor’s, Master’s or professional degree, completing college is crucial to greater earning power. In fact, the average Bachelor’s degree holder earns over 64% more than the average high school graduate. And the number rises for graduate and professional degree holders with the average professional degree holder earning more than three times the income of the average high school graduate.

Start Smart By Avoiding Pitfalls Too Much Credit Card Debt Little or No Savings No Short and Long Range Plan Yet the promise of greater earning power can be marred by poor financial decisions while in college. Chief among these is the accumulation of burdensome amounts of credit card debt.

The Credit Card Debt Picture Among college students, 76% have credit cards and 43% have four cards or more 7% of college students carry a credit card balance of $7,000 or more; 16% owe between $3,000 and $7,000 The average credit card balance among college students is $2,169 Source: Undergraduate Students and Credit Cards in 2004, Nellie Mae, May 2005 Here are some statistics on credit card debt. Among college students, 76% have credit cards and 43% have four cards or more. 7% of college students carry a credit card balance of $7,000 or more; 16% owe between $3,000 and $7,000. The average credit card balance among college students is $2,169

It’s Hard to Get Out From Under Credit Card Scenario #1 You charge $2,500 You pay $50 per month Yearly interest rate is 19.9% How long will it take to pay the balance? Credit Card Scenario #2 You charge $2,500 You pay $100 per month Yearly interest rate is 19.9% How long will it take to pay the balance? Scenario #1 You charge $2,500, you pay the monthly minimum payment of $50, and your yearly interest rate is 19.9%. How long will it take you to pay the balance? The answer is nine years and one month! And that is if you do not charge any more. Scenario #2 Same amount, you charged $2,500, only you pay $100 a month instead of the minimum. How long will it take you to pay the balance? Answer: two years, nine months. You have just saved yourself $2,150 in interest and paid your credit card off six years, three months sooner. 9 years 1 month 2 years 9 months

Six Steps For a Smart Start After College Establish Financial Goals and a Plan for Getting There Separate Needs from Wants Create a Monthly Spending Plan Start Saving and Bank Wisely Stay on Top of Your Student Loan Obligations Use Credit Wisely You can be in good financial shape when you graduate from college as long as you play it smart by following these six recommendations: Establish Financial Goals and a Plan for Getting There Separate Needs from Wants Create a Monthly Spending Plan Start Saving and Bank Wisely Stay on Top of Your Student Loan Obligations Use Credit Wisely

1. Establish Financial Goals Short Term Buy a car Buy new furniture Be debt free Vacations Long Term Buy a home Start a business Start a family College tuition for children Pay off student loans Retirement Determine your short-term goals. Think about what you'd like to achieve in the next three years. Determine your long-term goals. Think about what you’d like to achieve in the next five to seven years.

2. Separate Needs from Wants Needs are fixed expenses, such as rent or mortgage, utilities, food, clothing, transportation, taxes, health care, childcare and repairs. Wants are variable expenses: entertainment, cable, internet service, magazines, eating out, hobbies and cell phones. Don't spend more money than you have. Divide spending into needs (say, quarters for the laundry machine) and wants ($1,800 for a spring break trip to Florida). Don't spend on wants unless you can cover your needs.

Public Transportation Needs vs. Wants Item Need Want Food Groceries Eating Out Shelter Dorm/Roommate Apartment or House Transportation Public Transportation Gas, Car Insurance, etc. Clothes The Basics Trendy Styles & Brands Telephone Regular Phone Service Cell Phone Here is an example of needs vs. wants.

3. Create a Monthly Spending Plan Start at the beginning of each month Pay yourself first (open a savings account) Keep track of everything you spend; coffee, newspaper, magazine etc. Record all of your income Pay your bills on time Creating a spending plan will help you live within your means and develop skills you will use long after you get that degree. Write everything down so you can see where you are spending and where you may be able to cut back.

Spending Plan Worksheet Developing a spending plan helps reduce your need for consumer credit, save for things wanted and live within your income. Spending Plan Worksheet

Here is an example of a spending plan worksheet.

Three Sections Section 1: Income Section 2: Needs/Expenses Yours and your spouse’s (if you have one) Include financial aid Section 2: Needs/Expenses Include items like books, tuition, and interest expense on unsubsidized loans Section 3: Wants Things that are not necessities Include items like cable TV, lattes, eating out, the latest cell phone

Things to Consider Consider the unexpected Assess needs/expenses first Car repairs, fuel price increases, health care costs Assess needs/expenses first Prioritize wants from whatever dollars are left over Track your actual expenses as compared with your budget. Are you on track?

4. Start Saving and Bank Wisely Start a savings account Sign up for your employer’s retirement plan Borrow only what you need Sign up for automatic savings; what you don’t see does make a difference Start a savings account Sign up for employer’s retirement plan Borrow only what you need Sign up for automatic savings; what you don’t see does make a difference Today’s habits will pay off tomorrow!

The Effects of Compounding Banking and Savings Due to the effects of compounding, routine saving adds up quickly … The Effects of Compounding $50 a month = about $8,200 in 10 years $250 a month = about $41,200 in 10 years $500 a month = about $82,300 in 10 years Based on 6% interest. Here is an example of paying yourself first every month. If you can start with $50 a month, in 10 years you will save about $8,200 dollars, if you put $250 a month away, in ten years you will have nearly $41,200 dollars.

Choose the Right Bank When choosing a bank seek … Convenient Location and Hours Needed Types of Accounts Competitive Interest Rates Low Service Charges Available ATMs Secure Online Services When it comes to choosing a financial institution, everyone has different needs. There are many options and you'll find that financial institutions are aggressively competing for your business. Use this to your advantage as you begin your search. To make sure you are getting everything you want, here are some things to consider: Location. If you need to go to the bank to make a deposit or see a loan officer, can you get to a branch quickly and easily, or will you have to carve time out of your schedule to make a special trip? Types of Accounts Offered. Does the financial institution offer the types of accounts that you want – checking accounts, savings accounts, money markets, etc.? Does the bank offer special types of accounts for college students? Interest Rates. Savings and some checking accounts add money over time to your balance. The interest rates vary and may require a minimum balance, so shop carefully to get the best deal. Financial institutions also charge different interest rates on credit cards and loans. Depending on the size of your account and how long you plan on maintaining it, even a small difference in interest rates can add up over time. Be sure to comparison shop and include interest rates in your overall calculation. Service Charges. Financial institutions charge various fees for their services. For example, banks have various fee structures for checking accounts. Many are based on how you use the bank, your account balance or the number of checks you write each month. Others charge a fee if you use your ATM card more than a certain number of times each month. Be sure to ask about fees and services so that you understand what you may be charged. ATMs. Many banks charge to use their ATM if you are not an account holder. To avoid these fees, find out how many ATMs your bank offers and where they are located. Hours of Operation. Does your bank offer evening or Saturday hours or will you have to go to the bank on your break during school hours? Depending on location, you may have a variety of options. Find one that best fits your schedule. Online Services. Many financial institutions offer services that allow you to write checks and manage your account online. If you are on off-hours, or just prefer the convenience of banking from home, online banking may be an option.

Use Banking Services Wisely Shop around for banks that offer incentives Avoid overdraft fees Record all purchases Balance your account monthly Take advantage of online banking Debit cards are not credit cards Shop around for banks that offer incentives. Many banks offer incentives such as low minimum balance or free checking and some will offer free checks for life. When recording purchases please be sure to include all debit card transactions. Remember any debit card purchases are taken immediately from your account so be sure to balance your account. Take advantage of online banking, this could save you time and money. Remember debit cards are not credit cards.

5. Stay on Top of Student Loan Obligations Subsidized Loans Federal government pays the interest until the student enters repayment. When the borrower has been granted a deferment, the government pays the interest during the deferment period. Unsubsidized loans Student is responsible for paying the interest that accrues on the loan from the date of disbursement until the loan is paid in full, regardless of enrollment status. If you are awarded a loan as part of your financial aid package, you may be eligible for either subsidized or unsubsidized funds, or a combination of both. The big difference between the two is when the interest begins to accrue. Subsidized loans are awarded on the basis of financial need. You won't be charged any interest before you begin repaying the loan because the federal government subsidizes the interest during this time. Unsubsidized loans charge interest from the time the money is first disbursed until it is paid in full. The interest is capitalized, meaning that you pay interest on any interest that has already accrued. One way to minimize how much interest accrues is to pay the interest as it accumulates.

Pay Down Student Loans Pay Extra and Save An extra $50 a month Pay off loan 3 years faster Save $2,231 in interest An extra $250 a month Pay off loan 6 years faster Save $4,892 in interest An extra $500 a month Pay off loan 8 years faster Save $5,762 in interest Student Loan $15,000 borrowed 10 year term 8.25% interest rate Paying down your student loans can save you thousands of dollars. You have a $15,000 dollar student loan with a ten year term, the interest we will use is 8.25% (the reason I use this rate is this is the cap on variable student loans, which most of you may have), your monthly payment is $184.00. The total interest you would have paid over the ten years would be $7,077. By paying an extra $50.00 a month you will have paid your student loan off three years faster and saved $2,231 interest. Keep in mind there is no prepayment penalty on paying extra on your student loan, so anything you send extra could save you hundreds maybe even thousands. Monthly payment: $184 Total interest paid: $7,077

6. Use Credit Wisely Advantages Disadvantages Build credit Rent a car Available for emergencies Frequent flyer miles Online purchases Immediate cash availability Disadvantages Negatively affect credit Debt accumulation Years to repay debt High interest rates Repayment could be 3 to 5 times the original purchase price Immediate cash availability Let’s go over the advantages and disadvantages of credit cards. Advantages: they build credit. You need a credit card to rent a car. They are is available for emergencies and an immediate cash advance. Some credit cards offer frequent flyer miles (just be sure to know the terms of the credit card). You can make online purchases (many of us purchase on line because we usually can get what we are looking for cheaper). Credit cards also have disadvantages: They can negatively affect your credit (by not having good credit you are more apt to be charged higher interest rates, when buying a car, buying a home etc.) Debt adds up fast and can take years to repay, and repayment can be three to five times the original purchase price.

Choose the Right Credit Card Interest Rate Adjustable Rate Credit Cards Fixed Rate Credit Cards Fees: late fees, over the limit fees, annual fees, and balance transfer fees Reward Programs Introductory Rates Choosing a credit card can be difficult. With so many offers available, it can be tough to sort through the offers to determine which one best meets your needs. If you look at the interest rate, fees, and rewards, you should be able to narrow down the choices. Interest Rates--The first question most consumers have when they open a credit card offer is, "What's the interest rate?" High interest rates can make the cost of buy-now, pay-later prohibitively expensive, so consumers are wise to see what the interest rate is, and whether it's an adjustable rate or a fixed rate. Adjustable Rate Credit Cards--During periods when national interest rates are low, low-interest rate credit card offers become more plentiful than usual. Consumers who are used to seeing interest rate offers around 15 percent might start seeing offers around 9 and 10 percent--but beware. On the back of the offer, in the grid filled with fine print, there will be a box explaining how the interest rate can change based on the prime rate, the rate the company offers to their best customers. As national interest rates climb, the interest charged by adjustable rate credit cards climbs too. Fixed Rate Credit Cards--Many consumers are best served by choosing a credit card that has a fixed rate, even if the rate is a point or two higher than the rate on an adjustable rate card. If interest rates start to fall and you find that your rate is fixed at a number that's no longer competitive, most credit card companies will be happy to renegotiate your rate to keep you as a customer. Fees--Credit card companies are notorious for charging their customers hidden fees that can add up quickly. Forgetting to check the fees section of the credit card disclosure section could be a costly mistake. Late fees--Most financial institutions charge late fees. The fact that credit card companies charge such fees isn't surprising. What is surprising is how high the fees can be, and how quickly they're assessed. In the fine print on the back of the credit card offer, the disclosure statement will list information about the late fees. Wise consumers will stay away from the credit cards that assess a late fee at 1:00 PM on the day the payment is due. It sounds crazy, but a large number of cards work this way. The late fees themselves can be quite large--$39 is common. What's worse, a lot of credit card companies will raise your interest rates if you have even one late payment, so look for that too. Over the limit fees--Credit card companies know how embarrassing it can be to hand your card to a clerk to pay for dinner or a new dress, only to have the card be rejected because you've gotten too close to your spending limit. Many credit cards will continue to be accepted even after a person has gone a bit over the limit--but the credit card company will charge a hefty fee each time. If you're the type to forget how much credit you have, choose a card that doesn't charge a fee if you go over the max. Annual fees--Most credit card companies make their money from charging cardholders an interest rate. Some cards, though, also carry an annual fee. Cards marketed to consumers with credit problems and cards that include big reward packages are more likely to charge annual fees, which can be hundreds of dollars a year. The credit card company continues to charge annual fees until you cancel the card, even if you stop using it. Balance transfer fees--If you have a high balance on a credit card with less-than-terrific interest rates, you may be tempted by credit card offers that promise to waive interest rates or charge low interest rates on balance transfers. Read the fine print on the disclosure statement on the back of the credit card offer. Some cards charge a balance transfer fee of up to 10 percent, which can offset the benefit of a lower interest rate. Reward Programs--Credit card companies compete for your business by offering their lowest rates and fees to the best borrowers, sure, but they also offer rewards programs. Credit card shoppers can choose from rewards such as free gas, cash back, frequent flier miles and plane tickets, gift certificates to popular stores, and many more. But do your homework before you sign on for a rewards program, and make sure you know exactly what you're getting.

Manage Your Credit Cards Choose a credit card with no annual fee Use credit cards conservatively Charge only what you can pay off at the end of the month Make monthly payments on time Always pay more than the minimum requested Be wary of credit cards that offer free merchandise We just went over what to look for when applying for a credit card, here are some tips of how to manage your credit card. Choose a credit card with no annual fee Use your credit card conservatively Only charge what you can pay off at the end of the month Be sure to make your monthly payments on time, being even a day late you will be charged a late fee, and that could be as much as $35.00. Mail your payments ten days prior to the due date. Always pay more than the minimum requested, this could save you hundreds in interest Be wary of credit cards that offer free merchandise, most credit cards that offer free merchandise tend to have higher interest rates.

Manage Your Credit Cards Do not purchase on impulse Do not charge more than you can afford Know when your credit card payment is due Do not live a lifestyle you cannot afford Do not use credit cards for cash advances, unless it is an emergency Managing your credit is important, so Do not purchase on impulse Do not charge more than you can afford Know when you credit card payment is due, remember mail ten days prior to due date Do not live a lifestyle you cannot afford Do not use credit cards for cash advances, unless it is an emergency (cash advance fees usually come with a fee and are at a higher interest rate.

Protect Your Credit Reduce access to your personal data Always take credit card receipts with you Never permit your credit card number to be written onto your checks Order your free credit report once a year Remove your name from the marketing lists of the three credit reporting bureaus Never allow anyone to use your credit card The crime of identity theft is on the rise. Recent surveys show there are currently 7-10 million victims per year. Protecting your credit and personal information is essential to protecting your identity. Here, a few important key points to protect yourself. Minimize the amount of information a thief can steal. Do not carry extra credit cards, your Social Security card, birth certificate or passport in your wallet or purse, except when needed. Remove your name from the marketing lists of the three credit reporting bureaus -- Equifax, Experian and Trans Union. Call 888-5OPTOUT or go online to www.optoutprescreen.com. This will limit the number of pre-approved offers of credit that you receive. These, when tossed into the garbage, are a potential target for identity thieves, who use them to order credit cards in your name.

Protect Your Credit The three national credit bureaus are: Equifax www.equifax.com (800) 997-2493 Trans Union www.transunion.com (800) 888-4213 Experian www.experian.com (888) 397-3742 There are three national credit bureaus. Here are their Web sites and phone numbers.

Protect Your Credit www.annualcreditreport.com (877) 322-8228 www.optoutprescreen.com (888) 5OPTOUT You are now able to order your credit report from each of the three national credit bureaus once a year for free. The best way to monitor your credit is by pulling one credit bureau report every four months, this way you can see if anything has changed over the year. Keep in mind each of these agencies report to each other. So please, take advantage of the opportunity to monitor your credit report.

Feeling Overwhelmed? Ask for help Call at the first sign of trouble Denial of credit Credit cards that are maxed out Borrowing money to pay bills Paying only the minimum Contact your student loan provider Contact a Consumer Credit Counselor Work out a plan to repay Feeling overwhelmed? Ask for help. Are you being denied credit? Are your credit cards maxed out? Are you borrowing money to pay bills? Are you only paying the minimum? If you are experiencing any of these, call for help. Talk to your creditors and advise them what your situation is. Most will work out a plan to get you back on track. Contact your student loan provider. See if you may be eligible for a deferment where you can postpone your payments until you are back on track. If you have tried everything and still feel overwhelmed, it may be time to contact a non-for-profit Consumer Credit Counseling service in your local area. They will be able to make calls to your creditors and may even be able to get you a reduced interest rate and stop any late fees you may be incurring.

Follow these guidelines and you will have a successful future Follow these guidelines and you will have a successful future! You will be able to take that vacation, pay off bills, and buy your new car or home! By following these guidelines you will have a successful future! Your dreams can become a reality, you will be able to take that vacation, pay off your bills and buy that new car or home!

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