The Facts on Credit Those who are wise never pay interest… they earn it!

What is Credit? Are you truly “buying” something when you use a credit card? No... Another word for credit is “loan”... What happens when you use a credit card?

Answer: $4000 (This includes your car loan…) $4000/12 months= $334 a month. The total amount of credit should not exceed 20% of one years NET income… What is the max someone should borrow if they net $20,000 per year / $1667 per month? How much credit can I use?

HIDDEN COST OF LOW INTEREST CREDIT CARDS  Balance transfers usually charge 3% on principal  $30 late fees with no grace period (Considered late one day after due date)  If late, interest rate bumps up to 21%  $30 over balance fees  Convenience checks have transaction fees

Advantages of Credit  Stimulates the economy  Helps us take care of emergencies  Convenient – ordering over the phone  Establishes a credit rating  Advance notice of sales and cask back on purchases  Easier to exchange and return items  Detailed monthly bill

Disadvantages of Credit  It always costs money  Risky to spend future income  Encourages careless buying (Needs vs. wants)  Facilitates over-buying which increases sacrifice that must be made eventually  Often increases family conflict  May lead to Bankruptcy  Increases the cost of doing business

Payday Loans The borrower requests a loan for a short period of time, usually one to four weeks. “Payday loan fee” - Up to 360% interest. If the borrower continues to have a financial problems and cannot pay the loan as promised, the interest keeps building on the debt.

Title Loans The borrower requests a loan for a short period of time, usually one to four weeks is ideal, but can go up to a year. Interest rates– Average 300%. If the borrower continues to have a financial problems and cannot pay the loan as promised, the borrower loses their...

Other Options….  Try a small loan from a credit union  Ask for pay in advance from your employer  Consider a loan from family or friends, (be sure to have the terms of the loan in writing)  Use a credit card cash advance  Request additional time to pay the bill from your creditors.  Pawn Brokers  Or… just don’t borrow money!!!

Credit Rating/ FICO Score  A credit rating assesses the credit worthiness of an individual. Credit ratings are calculated from financial history and current assets and liabilities. credit worthinesscredit worthiness  A credit rating tells a lender or investor the probability of the person being able to pay back a loan. loan  In recent years, credit ratings have also been used to adjust insurance premiums, determine employment eligibility, and establish the amount of a utility or leasing deposit.  A poor credit rating indicates a high risk of defaulting on a loan, and thus leads to high interest rates, or the refusal of a loan by the creditor. defaultinginterest ratesdefaultinginterest rates

Establishing Credit  Have checking and savings accounts and manage them responsibly. (These are not reported to the credit agencies, but help individuals develop a pattern of budgeting.)  Use layaway plans at stores  Save for large down payments on cars and other purchases.  Ask someone to be a cosigner for the loan.  Always make payments for bills ON TIME!!! (cell phone, utilities, credit cards, house payment etc.)

Let’s talk interest rates… Bad Credit vs. Good Credit  Bad Credit  $3000 on credit card  18% interest rate  If minimum payment of 2 ½% is only made…  It takes 22 years and $4100 dollars in interest to pay of the debt.  Total: $7100 to borrow $3000  Good Credit  $3000 on credit card  4% interest rate  If minimum payment of 2 ½% is only made…  It takes 11 years and $400 in interest to pay off the debt.  Total: $3400 to borrow $3000

Scary Statistics Top 25 U.S. cities with highest credit card debt City Dec average credit card balance City Dec average credit card balance 1. San Antonio $5, Tallahassee, Fla. $4, Jacksonville, Fla. $5, Colorado Springs, Colo. $4, Atlanta $4, Las Vegas$4, Honolulu $4, Washington, D.C. $4, Dallas $4, Augusta, Ga. $4, Norfolk, Va. $4, Reno, Nev. $4, Seattle$4, Spokane, Wash.$4, Austin, Texas $4, Savannah, Ga. $4, Richmond, Va. $4, Phoenix, Ariz. $4, San Diego$4, Miami $4, Baltimore $4, Montgomery, Ala.$4, Columbus, Ohio $4, Orlando, Fla. $4, Denver $4,608U.S. average$4,200

Moral of the Story…  Don’t spend more than you earn!!!  Use credit wisely!!!  Don’t get into debt!!!

References   nkruptcy.html nkruptcy.html nkruptcy.html    UEN Data Base