Credit Wisdom

Managing Money & Credit: A Lifelong Skill

Why Credit is Important FICO or credit score: Credit Card Issuers & Lenders –Determine APR Auto Insurers – Determine Premium Employers – Are you a worthy hire? Landlords –Are you a reliable tenant?

The Three Cs of Credit Character: The way you handle money and have repaid debt in the past. Capacity: Your ability to pay the debt after considering other monthly expenses. Capital: The value of your assets or what you own.

Whats Next? Life After High School

Learning Boosts Earning EducationAverage Annual Income Professional$71,258 Doctorate$60,729 Master's$48,772 Bachelor's$40,387 Associate$26,536 Some college, no degree$20,998 High school graduate only$18,571 Not a high school graduate$10,839

Your Paycheck 50% of U.S. young adults work Earn a minimum of $5.15 per hour Work an average of 20 hours / week $412 - Monthly $4,946 - Annual

Where Does All the Money Go? Food, Snacks & Beverages Movies School Events Music, CDs, Concerts Clothing, Cosmetics & Shoes Cars, Gas & Insurance Cell Phones

Credit Cards – The Perceived Great Equalizer Credit lets you buy more than they can afford. –Credit and credit cards –Current World Problem Needs are essentials –Food –Shelter –Clothing –Reliable transportation Wants are extras –Eating out –Big, expensive house –Shop till you drop –Brand new or an expensive car

Who Uses Credit Cards? U.S. population = 298 million Use credit cards = 150 million Pay off monthly = 50 million Carry a balance = 100 million 2/3 of credit card users dont pay off their balance $9,300 = average debt per household

Americas Love of Credit 1.6 million bankruptcies were filed in 2004 Americans are declaring bankruptcy at 10x the rate they were during the depression

Personal Savings Rate Declining 1974 to 1984 –10% –Fell to 4.8% 2004 –1.8% 2005 –-0.5% 2006 –-0.7% Hasnt been negative since the Great Depression

Saving for the Future Save 10% of every monthly check Use savings for: –Emergencies –Big purchases Trip with friends Car –Down payment on a home –Retirement

Advantages & Disadvantages of Credit Card Advantages –Convenient –On-line purchases –Kick-backs i.e. cash, airline miles, etc. –Can rent a car Disadvantages –Doesnt seem like real money –Easy to overspend

Use Credit Wisely You should use credit to buy: –House –Car –Education (student loan) and youll avoid trouble

Only Buy What You Can Afford Pay off monthly balances –Avoid interest –Avoid late fees Know your budget Know yourself –Are you an impulse buyer?

Pay More than the Minimum If you have a credit card balance: –Make a plan to pay as much as you can every month –Start with the credit card with the highest interest rate –Pay off the credit cards as quickly as you can

Limit the Number of Cards Americans have an average of 8 credit cards

Always Pay on Time Avoid late fees Keep your money in your pocket Maintain a good credit score –Late payments have the biggest negative impact. Easiest way to make money is to save money.

Choose a Low Rate 0% is lowest –But remember the catch 15.75% average fixed rate. If you pay your card off every month, the rate wont matter.

What Not to Use Credit For: Pay Day Loans

Payday Loans / Check Cashing Stay Away! What is it? –Cash Loan –Extremely High Interest –Short-term (14 – 45 days)

How Do They Work? You postdate a check They give you a loan Loan last for 2 weeks They charge you a fee for borrowing the moneyequivalent APR can be over 300%.

WA State Payday Regulations Can loan up to $700 Charge $15 per $100 borrowed up to $500 Charge $10 per $100 borrowed above $500 You pay $95 to borrow $700 for two weeks Annual APR = %

Risks of Payday Loans Not a long-term cash solution Borrowers get trapped in a payday loan cycle of debt –Take out loan after loan