Money Management and Credit Cards: What you should know

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Money Management and Credit Cards What you
should know!

• By Tami Moore

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We Would Like to Thank the Following for their
Support and Financial Contributions

• Platte Valley State Bank
• Kearney State Bank
• Ravenna State Bank

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Credit Card Workshop Format

• Why do retailers allow use of credit cards for
  purchases?
• How do credit card companies make money?
• How do Buy NowPay Later Plans Really Work?
• How can a credit card mean bad news to me?

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At the Department StoreCredit is an added
temptation!
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The Psychology of Spending
Some people spend money to deal with stress and
anger.
Some people spend out of boredom.
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Why do retailers allow use of credit cards for
purchases?

• Credit Cards increase the potential of impulse
  purchasing by consumers.
• Credit Cards provide a safety cushion for
  retailers, as they are paid directly and
  immediately by credit card companiesno problem
  with bouncing checks, layaways, foreign currency,
  or counterfeit bills

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How do credit card companies make money?

• Credit card companies charge retailers a fee
  (usually 4-5)
• Store credit card sales are 100,000, credit card
  company pays that store 95,000 and assumes
  100,000 of collectible debt. This provides a
  5,000 cushion for unpaid balances. Plus, they
  will be collecting interest on that 100,000
  (usually 11-22).

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But, What About Those 0 Offers?

• A credit card company may offer you the
  opportunity to merge all of your credit card
  balances and pay no interest for 6 months, or so.
• They are banking on you not having that debt paid
  in 6 months, perhaps even having a higher debt
  load.

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The trap within those offers

• Jo has 3 cards with 5,000 maxxed on each. She
  combines them and now owes only one company
  (15,000).
• She now has 3 cards with 5,000 worth of
  spending power.
• TEMPTATION!!!
• Floating until you sink!

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How do Buy NowPay Later Plans Really Work?

• You see an ad, Buy Now, Pay Nothing Until Next
  Year.
• Sound too good to be true?
• Imagine that you buy a sofa for 800 on one of
  these plans. Your debt is sold from the
  furniture store to a third-party credit company.
  The store gets 750 immediately in their bank
  account.

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Twelve Months Later

• You have enjoyed the couch for one full year, yet
  paid nothing.
• You get a notice in the mail that you owe this
  credit company 946.
• The balance has been accumulating 146 in
  interest!!!

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But the ad saidno money down, no payments, no
interest for one full year

• If you would have paid the 800 balance before
  the end of the year, you would have paid no
  interest. However, the credit company still made
  the 50 they received in the sale of the debt at
  the beginning.

• Essentially you paid 50 more by financing than
  you could have arranged in up-front cash payment.
• Interest accrues during that one-year time frame
  only if you actually wait until after the entire
  years time to begin payments. Its in the fine
  print.

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Finally, a Real Job With a Real Paycheck

• After graduation, youll be getting a regular
  paycheck, right?
• Research shows that college graduates today, now
  have a higher credit card balance than student
  loan balance.
• How much of that paycheck will be available for
  the good life?

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Student A

• At graduation he/she has a credit card(s) with a
  total balance of 5,000.
• Gets a decent job, but after living expenses and
  student loan payment, he/she has only 300 flex.

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Keeping 150 (37 per week) for discretionary
spending and paying the minimum payment of 150
per month, with an 18 rate

• It takes 4 years (47 months to clear this balance
  (not adding any new purchases).
• She/he pays 2,000 interest over that time, or
  40 of the original balance.

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Paying 300, and not having a life

• It would take 19 months (1 ½ years) and 800
  added interest to clear this balance.

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How can a credit card mean bad news to me?

• Building a good credit rating is essential in
  todays marketplace
• It provides security to mortgage lenders.
• Good credit ratings require self-discipline and
  education about how credit works.
• Without this self-management, you are pledging
  future income for present wants

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Sam

• Only charges 100 a month for necessities. Credit
  card has 16 rate.
• Pays the minimum of 25 each month.
• In one year, he/she will have accumulated a debt
  that will take another 65 months and 700 in
  interest to clear. www.defenselink.mil/mapsite/cca
  rdpay.html

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Pat

• Buys 200 outfit for formal and charges it on a
  12 card.
• Paying 15 a month, it will take him/her 14
  months to pay it off.
• In the meantime

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John and Mary have a new apartment

• They purchase 2000 worth of furniture with a buy
  now, pay nothing for six months plan.
• If they pay it off before that six months, how
  much will it take to clear the account?
• 2,000
• If they wait until one day after that six month
  period and the going interest rate is 18, what
  do they need to pay it off?
• 2,180

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Taylor and Erin are getting married

• If they have an average cost wedding and
  reception and put everything on their credit
  card, how long will it be before they have
  cleared that single event charge?
• Around their 25th Wedding Anniversary!

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How Can I Avoid the Temptation???!!!

• Be disciplined.
• Budget.
• Prioritize.
• Make using credit difficult.
• Use Debit Cards

• Failing to plan is planning to fail
• Bad Credit Histories Keep You From
• Buying a car
• Buying a home
• Even getting a job
• More and more employers are running credit checks
  on applicants

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Watch Your BackIdentity Theft
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Identity Theft

• Your credit card number makes you vulnerable in
  many ways.
• Complex, advanced schemes to rob your identity
  and run up credit on your card.

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Protect Yourself!

• Never give your credit card number over the
  telephone.
• Double-check the security of on-line sales.
• Watch all receipts and receipt processes.
• Report anything suspicious ASAP.

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Credit Cards

• Are helpful
• Build credit history
• Make timing of purchases/payment flexible
• Earn material benefits, discounts, etc.

• Are harmful
• Temptation to commit future earnings for impulse
  wants.
• Open other theft possibilities.

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So

• Be smart
• Be prepared
• Be strong
• Be safe
• Manage your credit before it manages you!!!

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Thanks for Your Time and Attention!

• Go forth and spend wisely.