Money Talks: If youre not careful, It just says Goodbye Tips to help you avoid: Highcost Loans, Frau

1
Money TalksIf youre not careful,It just says
Goodbye Tips to help you avoidHigh-cost
Loans, Frauds, Scams, other financial troubles
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2
Is Education Worth It?

• Average Annual Income (2002 U.S. Census Bureau)
• High School Dropout 20,764
• High School Graduate 27,160
• College Graduate 43,529

3
TheGreed Spectrum

• Legal

Honest Fair
Greed

• There are people out there who treat others with
  honesty, integrity, and fairness.

Illegal

• Some find legal means of cheating from us if we
  arent careful.

Cheat Steal Murder

• There are also those who will cheat, steal, and
  some will even murder for money.

4
What makes us susceptible?Utah has a reputation
for being one of the fraud capitals of the world.
Reasons?
Honesty?too trusting Most of us try to be honest,
we are used to dealing with other honest people,
and too often, we are unprepared when a con
artist comes along. It is sad and ironic that our
personal honesty can lead us to be too trusting.
5
Positive Motivation Negative Greed

• Wants
• Even though we dont like to think of ourselves
  as greedy, greed is not an on-off switch. It may
  be said that all of us have some degree of greed.
  If we channel that greed in a positive
  direction, it may be called positive motivation.
  If we allow our greed to take us into the
  negative realms, vile and destructive behaviors
  result.

6
Service With a Smile
The best cons use them very well! How can we
protect ourselves from smiley-faced crooks?
7
Dont sign it -

• unless you agree to it!
• How can you agree to it if you dont understand
  it?
• How can you understand it, if you dont read it?
• If you still dont understand it, get some help
  before signing!!!

8
Tips to help you avoid a lot of the problems
9
NOTHING is

• RISK-FREE

Especially nothing involving money! If someone
claims that something is risk free they either
dont understand, or they are lying (if money is
involved, there is always risk of loss, as well
as opportunity loss, etc.)!
10
The Greater the Rate

• The
• Higher
• the
• Risk
• Not only in racing, but

• Exception?
• If you have money at a federally insured bank or
  credit union, you can usually get a better
  interest rate without changing your risk of loss
  - by putting your money into time certificates,
  rather than in a regular savings account. There
  is a timing risk, however. If you need your
  money now, and your certificate doesnt mature
  for 3 months, you have a timing problem.

• Especially in
• financial matters!

11
If it sounds too good to be true

• It is!

• If you will remember this one saying, and use a
  little common sense, youll be able to avoid most
  of the frauds and scams. Most of them promise
  unrealistic rewards or benefits. The con artists
  depend on people whose greed exceeds their good
  judgement!
• Why would someone you dont even know want to
  give you money, or teach you some secret way to
  get it? Dont fall for it!

12
When big money is at stake

• Greed

• Brain

13
Interest

• If you save money, you
• Get it
• If you borrow money, you
• Pay it
• A very easy concept, but not enough people
• put it to work in their lives!

• If you spend too much of your future earnings,
  you mess up your future.

14
Dont participate in unethical deals!
If someone offers you a deal that takes advantage
of someone else...

• What assurance do you have that they wont also
  con you?

15
Want to know an easy way to make a million
dollars next year?

• Invest 10,000,000 at 10 APR

16
Want to know another way?

• Put 1 into savings each month
• -- for 168 years (at 5).
• These may sound silly, but somewhere in between
  1,000,000 for 1 year, and 1 for 168 years, is a
  valid way to build wealth.

17
Save 100 each month at 5
18
Save 100 each month at 5
19
Save 100 each month at 5
20
Save 100 each month at 5

• Now earning gt 110 each month

21
Savings Goal

• Many financial experts recommend that you save
  10 of what you earn. Stash it away and try to
  never, ever spend it! In order to do that, you
  will need at least one other account I call it
  the for sure savings account. This account is
  for the for sure expenses which come from time
  to time. Example Auto repairs. If we drive a
  car, we will have repairs, maintenance, and
  insurance. We dont always know when, but we
  know that they will happen. Another example
  Christmas. Those among us who celebrate
  Christmas are highly likely to spend significant
  amounts at Christmastime.

22
Start With

• Start immediately with a For Sure savings.
  Estimate your for sure expenses for each year and
  save enough each month to cover them.
• When you decide to do the emergency fund, you may
  not be able to start with 10 right away. But
  start with something, even if it is only 1.
  Then, as your income increases, increase the
  amount going to your emergency fund at least
  until you reach 10.

23
Increase as you can

• Keep increasing as your income increases.

24
Build More
25
More
Penalty for withdrawal IRA 401K 457K Roth IRA
Inconvenient

• You may wish to do like some people do put your
  emergency fund into accounts which penalize
  withdrawal. For many of us, that thought of
  penalty is sufficient to prevent us from
  withdrawing the money early. It is also
  advisable to put your for sure savings into an
  account which is inconvenient to get to. If it
  is too easy to access, it may be gone when you
  need it.

26
Invest vs. Save

• Here is a graph of the growth pattern of a
  particular mutual fund (group of stocks) compared
  to the same amount invested at a slow, steady
  pace of a 5 federally insured time certificate.
  Notice how the mutual fund has had stronger
  growth, but also periods of decline. What is it
  going to do next? You may wish to keep at least
  some of your savings in the safer, but slower
  growing time certificates.

27
Invest vs. Save

• If we look at the growth during years 2000,
  2001, and into 2002, we see that the time
  certificate has done much better. Remember, the
  greater the rate, the greater the risk. Some
  have described investing in the stock market as
  legalized gambling. With some study, you may
  be able to minimize the risk, nevertheless, there
  is still risk involved, no matter what the
  investment, or how sure it sounds.

28
Gross Income
College 1,600,000

• Disposable Income

HS Grad 900,000
Dropout 600,000

• Fixed Expenses

• This is a graphic representation of the average
  lifetime earnings of the high school dropout,
  graduate, and college graduate. The red
  represents fixed expenses (housing, utilities,
  food, etc.), the green represents income which a
  person can do with what s/he pleases.

29
Disposable IncomeAssuming that during the next
10 years or so, you will have somewhere around
30,000 disposable income,how much of it do you
want to spend on what you want?
30,000
If you borrow at 7 to buy a new car every 5
years, youll only get to spend 25,000 on cars
(the rest goes to interest).
If you borrow at 18 by using a credit card and
paying for each of your purchases in an average
of 5 years, youll only get to spend 20,000 on
what you want.
25,000 assuming 5 yr. payout
20,000 assuming 5yr. payout
14,000 assuming 5 yr
7
18
36
Save
If you borrow at
30
Before you borrow, know the APR!!!
Annual Percentage Rate (APR)The Federal Truth in
Lending Act requires lenders to disclose the APR
to consumers. It is our basis of comparison. It
is a great tool for us to know if we are getting
a good deal!

• Unfortunately, there are still lenders out there
  who state rates other than the APR (in violation
  of federal law). Some refer to an add-on rate,
  some to a weekly or monthly rate. Remember, the
  basis of comparison is the Annual Percentage
  Rate.
• 9 (add-on rate) is
• 20 (A.P.R.)
• Some people only ask Whats my payment amount?
  Dont be one of them.

31
When you borrow, always try to pay less than...

• 13 A.P.R.

• Consider yourself unlucky (or______) if you cant
  beat 13!

32
Why people pay more than 13

• Uneducated

• Deceived

• Not enough income

• Bad credit

33
Interest Rate Ceiling

• 36

• 18

• lt13

Some states have an interest rate ceiling of 36.
Utah did at one time, but currently has no
limit. We are seeing some rates that are
astronomical.For instance
That is, unless you use your credit card as a
means of borrowing. The average credit card rate
is 18.
If you keep your credit good and stay with the
reputable lenders, you can nearly always beat 13
APR.
Many small loan companies charge between 18 and
36 APR.
34
TOO EASY LOAN COMPANY Promissory Note with
Security Interest Security 1996 Olds
Annual Percentage Rate The cost of your credit
as a yearly rate. 300
Finance Charge The dollar amount the credit
will cost you. 4,442.80
Amount Financed The amount of credit provided to
you or on your behalf. 2000.00
Total of Payments The amount you will have paid
after you have made all payments as
scheduled. 6,442.80
25 per month Payment Schedule 12 Payments
of 536.90. Beginning 2/4/99 and on the 4th of
each month thereafter until final payment is made
on January 4, 2000.
These are actual figures taken from a real loan
which was faxed to the Department (name of lender
changed). Notice the APR. Which is higher 13
or 300? The borrower got 12 monthly payments of
536. If he pays back everything on time, he
pays a total of 6,443 in one year. He pledged a
96 Oldsmobile, which was worth about 10,000 at
the time this loan was written. If he misses a
payment, they take his car. What happens to his
equity? Many of these auto title lenders have
been stating a monthly rate rather than the APR.
35
Auto Purchase

• Honest
• Cheat
• Steal
• Murder

Where on the greed spectrum are car salesmen?
They can be anywhere. Some are very
unscrupulous, others are very honest. Even if
you deal with an honest one, you still have a
conflict of interest. He wants to make money,
you want avoid paying as much as you can. Who is
to protect you? If you dont, probably nobody.
36
Auto Loans
Comparing different financing arrangements, and
the cost of borrowing 10,000 at 7, 12, and 25
APR.

• APR 7 12
• Loan Amt 10,000 10,000
• Term 5 years 5 years
• Mo Pmt 198 222
• Interest 1,881 3,347
• Tot. Pmts 11,881 13,347

• 25
• 10,000
• 5 years
• 294
• 7,610
• 17,610

• Difference 1,466

The individual who got the 25 rate would pay a
total of 5729 more than the one who got the 7
rate. He knew about the 7 loan, but didnt
qualify because of bad credit.
5,729
Notice that the individual who got the 12 rate
pays a total of 1466 more than the one who got
7 (assuming each pay according to the terms of
the contract). If he had made 5 phone calls to
lenders, he would have found the 7 loan. Is it
worth 1466 to make 5 phone calls? Sometimes yes!
37
Insurance

• Full Coverage

• Single interest ins.
• As the name implies, it only protects the lender
• More expensive!

• Liability P.I.P. No-Fault
• Utah State law requires No-fault insurance, the
  penalties for failure to maintain are severe.

• Fails to provide No-Fault
• Penalties for failure to maintain no-fault
  insurance
• License Revoked 1 yr
• Car Impounded 200
• Ticket fine 400-1000
• SR 22 (high risk) Ins. (very expensive)

• Collision
• Comprehensive

Lenders require collision and comprehensive
insurance. Failure to maintain insurance puts
the borrower in default of his/her contract. At
default, the lender can repossess, but instead,
usually add
38
How Much Can I Afford to borrow?

• One tool used by many of the more reputable
  lenders
• Debt-to-Income Ratio

• Mo. Inc.

• Mo. Debt
• Pmts.

• 36

If your monthly debt payments (including mortgage
or rent) are less than 36 of your monthly gross
income, and if your credit is good, you have a
good chance of getting a loan with the lower-rate
lenders.Why not 96? Because we need to live
39
How Much Can I Afford to borrow?

• Mo. Inc.

• Misc.

• Food

• Utilities

• Taxes

• 36

• Debt pmts

What will you do when you have a high-expense
month?Remember the for sure savings account!
You will have months like this!
If you have a debt-to-income ratio of 36, some
months, you will have just enough to cover
expenses.
Occasionally you will have a bit extra.
40
Credit Cards Our Friends?
Or Our Foes?

• They can be either, depending on how we choose to
  use them.

41
Credit Card Purchase

• If we pay off our credit card balance each month,
  we pay no interest (most credit cards).

• If we dont pay the entire balance, interest will
  be charged.

42
Simplified Credit Card Statement

• Last Months Balance 128.42
• Payments received (128.42)
• Interest 0
• Auto Repair Center 289.94
• Joes Gas Goodies 14.32
• Babes Apparel Store 96.24
• Ending balance 400.50
• Minimum Payment Due 20.00

• We have the choice of paying the entire balance,
  the minimum required payment, or some amount in
  between. If we wish to avoid paying interest, we
  must pay the entire balance.

43
Paying only the minimum required payment is a
very costly way to use credit cards

• Minimum payment (and make no other purchases)
• At 18 it would take
• 34 yrs to pay off -- 12,893 int.
• At 21.9
• 88 yrs to pay off -- 43,729 int.

44
A very costly way to use credit cards
Some people charge against their credit cards to
the limit, then try to consolidate. Many
financial institutions say Yes, but only IF you
have good credit enough income equity
45
The most expensive way to useCredit Cards

• Some people charge on their credit cards until
  they go slightly over their limit, then - even if
  they make the minimum required payment, they get
  deeper into debt as their balance increases
  because of
• Over-limit fees.

46
Credit Cards
WonderCard
5224 789 003 290

• Set up Fee?
• Annual Fee?

• Most credit card companies do not charge setup
  fees or annual fees.

• Grace Period?

• If you wish to avoid paying interest, make sure
  your credit card plan charges no interest when
  you pay off the balance within the grace period,
  and do it!.

• APR?

• If you dont pay your balance each month, be sure
  to pay attention to the Annual Percentage Rate
  and find a credit card with a low rate.

47
27 TV

• Suppose you see a TV you want to buy with a
  retail price of 400.

• 400.00
• cash

• If you have saved enough in your buy stuff
  account, you can withdraw your money and buy the
  TV. If you use a credit card, and pay off the
  balance within the billing cycle, you pay no
  interest (if it is a credit card which has the
  grace period).

48
27 TVOn Sale

• If you shop around and find the same TV for 350,
  you just saved 50. But what did you save in
  terms of your ability to earn money? If you are
  in an average tax bracket of about 20, you must
  earn 62.50 before you can spend 50. So if you
  avoid spending 50, that is like earning 62.50.
  If you earn 10 per hour, you just saved the
  equivalent of 6 1/4 hours of work!

• 350.00
• by smart shopping

• 50 / .80 62.50 earn
• 62.50 / 10 6 1/4 hrs

49
27 TV 400.00using a credit card

• at 18 A.P.R. If a person charges the 400
  TV and can pay-
• 26.00 per month
• it will take
• 18 months to payoff. During that time the buyer
  would pay
• 59.00 in interest, for a
• total cost of 459
• 59 shouldnt ruin anybodys life, but, who wants
  59 added to each of their purchases?
• 59.00 / .80 74 earn
• 74 / 10 7.4 hrs extra to pay the 59.

50
27 TV 400.00Finance Company

• at 36 A.P.R.
• 18 mo. Pmts.
• 29.00 per mo.
• 123.00 int.
• Total Cost 523
• 123 / .80 154
• 154 / 10 15.4 hrs

51
27 TV 400.00Rent-to-Own

• A rent-to-own company was offering the same TV
  for
• 70 per month
• How many months would be fair before ownership?
  When asked, they said
• 18 months
• (196 A.P.R.)
• (860.00 int.)
• Total Cost 1260
• 860.00 / .80 1075.00 earn
• 1075.00 / 10 107 hrs

• Neither the APR nor the interest is required to
  be disclosed on a rent-to-own contract, because
  technically, they are not loans.

52
27 TV 400.00Too Easy Loan (Bad Credit OK)

• 300 A.P.R.
• Car Title Pawn
• If 18 months
• 102.00 payments
• 1,433 interest
• Total Cost 1833
• 1433 / .80 1791
• 1791 / 10 179 hrs

53
27 TV 400.00Payday Loan

• If a person borrows 100 from a payday lender for
  a week, not a big deal. S/he paid 10 interest.
  However we are finding that many people use
  payday loans over and over.

54
27 TV 400.00Payday Loan
55
27 TV 400.00

• 10 (per week)
• Payday lenders have been notorious for illegally
  stating a weekly rate rather than the APR when
  asked about the cost of their loans. Remember,
  the fair basis of comparison for loan costs is
  the APR (as well as the dollar amount).

• 10 per week is about 520 APR. (10 x 52 wks
  520)

• 18 months Payday loans are not intended to be
  more than short-term loans, usually less than one
  month. But, for comparison purposes, if someone
  used a series of payday loans to finance the TV
  over 18 months

• 2,725 interest
• Total Cost 3125

56
Why? Why do people pay high interest rates?

• Desperate people do desperate things
• --Over-extended. People with excessive debts do
  not qualify for low-rate loans.
• --Bad Credit. People with bad credit history
  usually do not qualify for low-rate loans.
• --Low income. People with low income relative to
  expenses do not qualify.
• --Gambling. Compulsive gambling has been the
  financial downfall of many.
• --Alcoholism. The individual whose 300 loan was
  shown early in this presentation was an
  alcoholic.
• --Drugs. A very high percentage of the people in
  jails and prisons are their because of drugs.
  X-cons have a difficult time establishing good
  credit.
• --Health problems. Some health problems are
  preventable, and health insurance helps immensely
  when we do have problems.

57
Credit Bureau Reports

• Bill S. Preston 529-00-0000
• Employer Wylde Stallyns

• The low-rate lenders do not want to see payments
  more than 30 days late
• Department Store 1000 1050 5gt30
• Credit Card 5000 4999 6gt30,3gt60,1gt90
  especially not 60 90
• Dumpy Bikes 500 430 Collection agency
• Fast Car Lot 6000 0 Repossession
• Any one of the above can disqualify a person from
  borrowing from the lower-rate lenders for quite
  some time. Lenders are also starting to pay
  attention to credit card balances relative to
  limits. Credit cards at their limit are often
  counted negatively as are cards over their limit.

• Credit Card 2000 0 as agreed They do
  like to see a few paid as
• Home Mortgage 70000 65000 current agreed,
  or current accounts.
• Overdraft Line of Cr 2000 0 as agreed
• Even rarely used credit cards help build good
  credit (as long as a person pays on time and
  doesnt have too many credit cards). A person
  can establish credit without paying any interest
  by paying off credit card balances within the
  billing cycle, and by maintaining an overdraft
  line of credit with a zero balance.

58
Popular Credit Scoring System

• 35 Payment history
• older small items count less
• 30 Amount of debt
• overextended?
• 15 Length of credit history
• 10 New credit
• amount accumulated within the past 12-18 months
• 10 Types of credit
• too many credit cards

59
Credit Repair Scams

• Bill S. Preston 529-00-0000
• Employer Wylde Stallions
• Creditor Limit Bal
  Comments
• Department Store 1000 1050 5gt30, 3gt60
• Credit Card 5000 4999 6gt30,3gt60,1gt90
• Dumpy Bikes 500 430 Collection agency
• Fast Car Lot 6000 0 Repossession
• Credit Card 2000 0 as agreed
• Home Mortgage 70000 65000 current
• Overdraft Line of Cr 2000 0 as agreed
• Some companies claim to be able to remove
  legitimate debts from credit reports. They are
  fraudulent! Do not participate in a fraud. If
  you find errors on your credit report, you may
  correct them yourself by contacting the credit
  bureau directly.

• Equifax 800 685-1111, Trans Union 800 916-8800,
  Experian 888 397-3742

60
If you dont pay your bills on time, your bad
credit will inhibit you

• Borrowing
• Buying a home
• Renting Many landlords are looking at credit
  histories.
• Increasing insurance rates Many insurance
  companies charge higher rates to people with poor
  credit.
• Credit Card Companies Many credit card companies
  are routinely pulling credit reports on their
  existing customers. When those customers have
  negative credit with other debtors, their
  interest rates are increased.
• Getting a good job Many employers are looking at
  credit reports in their employee selection
  process.

61
What if youve already been smashed financially?

• Hang on until you can bounce back!
• Satisfy your obligations asap (high rates 1st)!
• Keep everything current for 2 years.
• If you cant, get some help.

62
Pre-Approved

• What Does it mean?

• NOTHING!
• Beware! Dont count on pre-approved financing
  arrangements. Too often pre-approved simply
  means you name was obtained from a solicitation
  list.

63
Late Payments can be extremely EXPENSIVE!

• If you pay 30 days late,
• your credit report is negatively affected
• which results in increased future costs.
• If you are 1 minute late on some contracts
• you get late fees
• late fees can change a debt from a reasonable
  interest rate to an outrageous effective rate.

• Repossessions Contrary to popular
• belief, lenders do not need to notify a person
  before repossessing.
• Legal other fees Fees can bring financial
  death!

64
Top Scams in Utah Derived from information
obtained from Utah Division Of Consumer
Protections website.

• 1. Identity Theft
• 2. Deceptive Business Training Seminars.
• 3. Fraudulent Telemarketing Schemes.
• 4. Fraudulent Charities.
• 5. Travel Scams.
• 6. Nigerian Money Frauds.
• 7. Deceptive Car Repair Practices.
• 8. Prize Promotion Scams.
• 9. Telephone Slamming Cramming.
• 10. Advance Fee Loan Credit Card Scams.
• 11. Credit Repair Scams.

65
Loan Scam

• (STRICTLY CONFIDENTIAL)
• We want to assist you in this UNIQUE venture.
• These European transactions are Legal, allowing
  you to borrow hundreds of thousands of dollars
  and NEVER have to repay a cent!!
• How? The lender (Offshore Bank) deducts a
  compensating balance from the proceeds of your
  loan, your loan is SELF-LIQUIDATING or PAID OFF
  by the compensating balance.
• EVERYONE QUALIFIES. No risk what so ever!!
• Application Fee 65.

66
Loan Scam

• (STRICTLY CONFIDENTIAL)
• We want to assist you in this UNIQUE venture.
• These European transactions are Legal, allowing
  you to borrow hundreds of thousands of dollars
  and NEVER have to repay a cent!!
• How? The lender (Offshore Bank) deducts a
  compensating balance from the proceeds of your
  loan, your loan is SELF-LIQUIDATING or PAID OFF
  by the compensating balance.
• EVERYONE QUALIFIES. No risk what so ever!!
• Application Fee 65.

• Nonsense!

67
E-mail Scam?

• WORLD CURRENCY CARTEL will instruct a LIMITED
  number of people on HOW TO CONVERT 25 INTO 100
  OF LEGAL CURRENCY. We will transact the first
  conversion for you, after that you can easily and
  quickly do this on your own, hundreds or even
  thousands of times every month. TAKE ADVANTAGE OF
  THIS SECRET FLAW! There is a one time
  membership fee of only 35 Your important
  instructions will be mailed We are only
  accepting CHECK-BY-FAX payable to NDML. Fax it
  to 212-000-0000.

68
E-mail Scam?

• WORLD CURRENCY CARTEL will instruct a LIMITED
  number of people on HOW TO CONVERT 25 INTO 100
  OF LEGAL CURRENCY. We will transact the first
  conversion for you, after that you can easily and
  quickly do this on your own, hundreds or even
  thousands of times every month. TAKE ADVANTAGE OF
  THIS SECRET FLAW! There is a one time
  membership fee of only 35 Your important
  instructions will be mailed We are only
  accepting CHECK-BY-FAX payable to NDML. Fax it
  to 212-000-0000.

• Nonsense!

69
URGENT
Congratulations Ms. Uccer, You have been
pre-approved for a gold card with a 10,000 limit
valid exclusively toward all purchases from
provider. Mail your 29.95 annual fee along with
this notice. Full details of your membership will
be included with your card.

• Yordas Uccer
• 1 F St.
• U-Falls Forthis, UT 84666

• Provider Crudcorp Inc.
• Status Pre-Approved
• Limit 10,000
• Rate 12 APR

70
URGENT
Congratulations Ms. Uccer, You have been
pre-approved for a gold card with a 10,000 limit
valid exclusively toward all purchases from
provider. Mail your 29.95 annual fee along with
this notice. Full details of your membership will
be included with your card.

• Yordas Uccer
• 1 F St.
• U-Falls Forthis, UT 84666

• Provider Crudcorp Inc.
• Status Pre-Approved
• Limit 10,000
• Rate 12 APR

71
Debit Cards?

• Why?
• Easy access to checking
• Dangers
• Holds on your account
• Can cause bounced checks
• Mail order - dissatisfied?
• Lost or stolen? Money gone.

Debit Card
5224 789 003 290
72
Debit Card Purchase

• Advantages
• No debt (using own money)
• Easy access to checking
• Disadvantages
• Money gone
• Holds
• Bounced checks

73
To avoid the Hazards of Checking Accounts

• Keep your blank checks in a safe place
• If someone steals your checks and forges your
  name, technically, since you didnt sign the
  checks, you did not authorize the money to be
  deducted from your account, and are therefore not
  responsible. However, once the money is gone
  from you account, you may not be able to get it
  back. The financial institution may claim that
  you were negligent...

74
To avoid checking acct. problems

• (1) Reconcile your records to the banks the day
  your get your bank statement. The sooner you
  reconcile, the easier it is. If you fail to
  notify the bank within 60 days errors they may
  have made, you are unlikely to get your money
  back.

75
To Avoid Bounced Checks

• Have a backup arrangement for when you make a
  mistake.

• By setting up an overdraft line of credit (an
  empty loan tied to your checking account), when
  you make a mistake and write a check for more
  than the balance in your account, you can avoid
  bounced checks.

• Line of Credit

• Checking

76
Overdraft Line of Credit

• A loan advance is made to cover your check. If
  you pay off the loan balance as soon as you learn
  of it, the interest and fees are minimal (at most
  financial institutions).

• Line of Credit

• Checking

77
Overdraft Line of Credit

• If you dont set up a backup system, you could
  run into a situation like this

• A lady made a simple mistake on her check
  register, which caused one check to bounce. The
  bank deducted a 20 returned check fee. That
  caused 3 other checks to bounce Within one
  month, she had incurred 600 of returned check
  fees. If she had set up and properly maintained
  an overdraft line of credit, she would likely
  have incurred less than 5 of interest and fees.

• 20 returned check fee
• 60
• 100
• 300
• 600 Fees

• Checking

78
Some people defeat the purpose of their overdraft
line of credit

• High rate

• And returned check fees!

• They use their overdraft line of credit as a
  common loan or charge account, and thus defeat
  the purpose of having it. Then, if they make a
  mistake, their check not only bounces, but they
  are paying interest at a higher rate than is
  available on other types of loans.

• VCR

• Stereo

• Bike Rack

• Mountain Bike

• TV

• Line of Credit

79

• High rate

• But a high rate times zero is zero. If you keep
  the line of credit empty (zero balance), you pay
  no interest, you have a backup system for your
  checking account, and you build a credit rating
  without paying interest.

• Line of Credit

• Checking

80

• Some financial institutions allow their checking
  accounts to be tied to savings accounts. Then if
  the customer makes a mistake on their checking
  account, the money is automatically transferred
  from a savings account. This can work well if
  sufficient is maintained in savings, if it is not
  used too often, and if the financial institution
  doesnt charge large fees.

• Savings

• Checking

81

• Savings

• Checking

82
Keep your backup available for when you need it!

• Line of Credit

• Savings

• Checking

83
Dangers Lurking! Each time you refinance, you
add to your debt (nearly always).

• If you are considering refinancing or
  consolidating loans, beware. Consolidations and
  refinances can be very useful, but they can also
  cause problems such as much more interest paid
  over the life o f the loan. Be careful that you
  dont defeat your intent. There are monsters out
  there who are more than willing to take as much
  money as you are willing to give them.
• In 2002 lady called the Department of Financial
  Institutions. She had wanted to get a better rate
  on her mortgage loan. She found out that shed
  gotten a very bad deal the last time she
  refinanced.

84
She had refinanced her home 2 years prior
because interest rates had gone down. She
thought she was getting the loan terms shown in
the left column below. When she went to
refinance again, 2 years later because rates had
gone down again, she found out she actually had
the loan in the middle column below. I asked why
she signed such a loan, she said she was in a
hurry and didnt read the documents. A very
costly mistake! According to my calculations she
lost about 24,000 by not paying attention.

• NWF
• 147,000
• 17,000
• 164,000
• 10

• Typical
• Re-financed 147,000
• Closing Costs 3,000
• New Loan 150,000
• Rate 8

• Diff
• 14,000
• 3,000

• Prepay Penalty 0 7,000 7,000
• 24,000

85
Mortgage LoansCompare All CostsBefore Signing
Anything

• Closing Costs
• Fees Typical
• Total Closing Costs 3,034

• Badguys Difference
• 13,466 (10,432)

• Another mortgage company charged a family about
  10,000 more in closing costs than most other
  mortgage companies would have charged.

86
Variable vs. Fixed Rate

• In addition, they were given a variable rate loan
  (indexed artificially low) and payments increased
  every 6 months. The borrowers thought they were
  getting a fixed rate loan (where payments stay
  the same).

87
Home Loans Beware

• 1. Prepayment penalties?
• 2. Compare Rates
• 3. Compare Fees
• 4. Fixed vs. Variable?

88
Avoid Closing Trapsespecially if delayed

• Take your time
• Dont just (sign, sign, sign)

• Understand what you are signing and why.

• Expect delays, and keep all your other
  obligations current.
• Could be one of the most important 3 hours of
  your financial life.

89
Avoid Advanced-Fee Loan Scams

• Dont fall for promises to get you a loan or a
  credit card regardless of credit problems!
• Dont wire 49 to New York
• Dont give solicitors your account numbers!

Who do they prey on? The most vulnerable - those
who can least afford the loss.
90
Dear Sir, CONFIDENTIAL BUSINESS PROPOSAL FROM THE
NIGERIA CHAMBER OF COMMERCE, I HAVE THE PRIVILEGE
TO REQUEST FOR YOUR ASSISTANCE TO TRANSFER THE
SUM OF 45.5 MILLION U.S. DOLLARS INTO YOUR
ACCOUNT. THE ABOVE SUM RESULTED FROM AN
OVER-INVOICED CONTRACT, PAID BY A FOREIGN
CONTRACTOR. WE REQUIRE YOUR ASSISTANCE. THE TOTAL
SUM WILL BE SHARED AS FOLLOWS 70 FOR US, 25
FOR YOU AND 5 FOR LOCAL AND INTERNATIONAL
EXPENSES INCIDENTAL TO THE TRANSFER. THIS ACTION
WAS HOWEVER INTENTIONAL. WE ARE FORBIDDEN TO
OPERATE A FOREIGN ACCOUNT THE TRANSFER IS RISK
FREE. REPLY URGENTLY, ALBERT KATUKA
91
Dear Sir, CONFIDENTIAL BUSINESS PROPOSAL FROM THE
NIGERIA CHAMBER OF COMMERCE, I HAVE THE PRIVILEGE
TO REQUEST FOR YOUR ASSISTANCE TO TRANSFER THE
SUM OF 45.5 MILLION U.S. DOLLARS INTO YOUR
ACCOUNT. THE ABOVE SUM RESULTED FROM AN
OVER-INVOICED CONTRACT, PAID BY A FOREIGN
CONTRACTOR. WE REQUIRE YOUR ASSISTANCE. THE TOTAL
SUM WILL BE SHARED AS FOLLOWS 70 FOR US, 25
FOR YOU AND 5 FOR LOCAL AND INTERNATIONAL
EXPENSES INCIDENTAL TO THE TRANSFER. THIS ACTION
WAS HOWEVER INTENTIONAL. WE ARE FORBIDDEN TO
OPERATE A FOREIGN ACCOUNT THE TRANSFER IS RISK
FREE. REPLY URGENTLY, ALBERT KATUKA
Americans have been flooded by numerous versions
of the Nigerian money scam, dont fall prey to
their too-good-to-be-true claims.
92
1 Cause of Divorce

• 70-80 of divorcing couples attribute the
  marriage breakdown to money problems

93
BEWARE

• Tell me your credit card number
• Tell me your checking account
• Tell me your Social Security
• Wire fees out of state

94
BEWARE

• Tell me your credit card number
• Tell me your checking account
• Tell me your Social Security
• Wire fees out of state

95
Remember

• Understand what you sign.
• Dont sign anything you dont agree to.
• Shop for the best deal available to you.
• Keep your greed under control.

96
Pay Off Loans Early

• Bal Rate Term Pmt Total Int Pd
  Savings
• (If simple
  interest)
• 10,000 12 60 mo 222 13,346 3,346

• 10,000 12 57 mo 232 13,167

3,167 179

• 10,000 12 47 mo 272 12,582

2,582 764

• 10,000 12 38 mo 322 12,069 2,069
  1,277

• If you pay as little as 10 extra principal each
  month, on such a loan as this, you can avoid
  paying the lender 179 (less interest). The more
  you pay, the quicker you pay them off, and the
  less money you pay them. Make sure you make your
  extra principal payments in the manner your
  lender prescribes.

97
Pay Off Mortgage Early

• Bal Rate Pmt Term Tot Cost
  Savings
• (360 mo)
• 136,283 8 1000 30 yr 360,000

223,717

• 136,283 8 1010 29 yr 349,056

212,773 10,944

• 136,283 8 1050 25 yr 317,100

180,817 42,900

• 136,283 7.75 1283 15 yr 234,360 98,077 125,640

98
Bi-Weekly Payment Programs

• A convenient way to pay off
  early, if
• Your paydays are Bi-weekly
• Your lender accepts extra principal (most do w/o
  penalty)
• Reputable money handler (some have skipped)
• Low or no fees

• Warning many charge a monthly service fee
  set-up fee!
• 5 bw service fee 150 setup
• 25 bw service fee 4,000 setup

99
The Advantage ofBi-Weekly Payments
Since there are 365 1/4 days in an average year,
and 14 days in each bi-weekly period 365 1/4 ?
14 26.08929 there are 26.08929 biweekly periods
each year.

• 26.08929 half payments ?
• 13.04464 full payments in an average year

100
About once every 11 years a person paying 1/2 of
his monthly payment bi-weekly makes the
equivalent of 13 1/2 monthly payments (by
making 27 half pmts bi-weekly) Every 11 years 3
months have 3 bw paydays (3 extra paydays -gt 1
½ extra full payments)
Since making 1/2 of the required monthly payment
bi-weekly yields 26.08929 half payments in an
average year, every 11.19946 years (average) an
third bi-weekly period would occur. 1 (bi-weekly
period) .08929 (average extra bw payment per
yr) 11.19946 (average years).
101
Extra Principal Bi-Weekly or Monthly

• Compare the advantage of extra principal payments
  on a loan with these terms
• Loan Rate Pmt Term Total Paid

• 100,000 8 733.77 mo 30 yr 264,157

Extra Principal bi-weekly If 1/2 of the required
monthly payment is paid bi-weekly 26.09 half
pmts are made each year, or 13.05 full payments
each year (rounded). Mo. pmt 733.77 2 366.89
bi-weekly
22.65 yrs
216,832
(by paying 17,000 early, you avoid paying 47,325
of interest)
To gain the same advantage Extra Principal
Monthly
66.04 additional principal
Pay 1.09 x 733.77 799.81 1.09 1/12 of
13.05 pmts
22.5 yrs
48,209
215,948
102
Re-finance and save hundreds each
month (100,000 30 yr 8 loan after 10 years)Many
lenders encourage borrowers to refinance. If the
goal is to reduce monthly payments, a refinance
may work just fine. If the goal is to pay less
total interest, it may be better not to
refinance, unless you refinance and keep paying
the old payment.

• Mortgage bal. 87,724 734 pmt 8 20 yr
  remaining
• Car bal. 13,056 415 pmt 9 3 yr
  remaining
• Other 8,000 203 pmt 18 5 yr
  remaining
• Total 108,780 1,352

Int. if paid as agreed 95,000
50,756 if keep paying 1352 no refi
Int. fees 173,000

• Consolidated 111,780 782 pmt 7.5 30 yrs
• you save (avoid spending) 493 per
  month

Int. fees 50,000
if you keep paying 1,352 (117 mo)
9.75 yrs
Great, if you keep paying the higher payment, and
dont run up your credit cards, etc. again!
103
Getting out of debt quicker, by focusing first on
highest rate debts
After .8 yr. more, apply the amount formerly
going to the doctor (40) and to the dentist
(50) to the next highest rate debt (the credit
card).
After 1 yr., start applying the amount formerly
going to the doctor (40) to the next highest
rate debt (the dentist).
Lets suppose someone had the following debts.
They could meet the payments, but with no money
to spare Existing Balance Payment Rate
Remaining Obligations (p i) Term
(yrs.) 1st Mort 78,721 651 8.5
22.9 yrs. Auto Loan 10,239 250 9.0
4.1 yrs. Trailer 5,451 150 9.8
3.6 yrs. Credit Card 6,539 120 18.0
9.5 yrs. Doctor 400 40
21.0 .9 yrs. Dentist 1,200 50
19.0 2.5 yrs. Totals 102,550 1331 (pi
stands for principal interest)
After 1 year New New New Bal. Pmt.
Term 77,554 651 21.9 8,072 250 3.1
4,126 150 2.6 6,253 120 8.5 0
0 0 794 90 .8
After 1.8 years New New New Bal. Pmt.
Term 76,547 651 21.1 6,194 250 2.3
2,970 150 1.8 5,984 210 3.1 0
0 0 0 0 0
104
Getting out of debt quicker, by focusing first on
highest rate debts
After .7 yr. more, applying the amounts formerly
going to the doctor, the dentist, the credit
card, trailer auto loan to the mortgage loan.
After 1.9 more yrs, by applying the amounts
formerly going to the doctor, dentist to the
credit card, the new terms
Lets suppose someone had the following debts.
They could meet the payments, but with no money
to spare Existing Balance Payment Rate
Remaining Obligations (p i)
Term 1st Mort 78,721 651 8.5
22.9 yrs. Auto Loan 10,239 250 9.0
4.1 yrs. Trailer 5,451 150 9.8
3.6 yrs. Credit Card 6,539 120 18.0
9.5 yrs. Doctor 400 40
21.0 .9 yrs. Dentist 1,200 50
19.0 2.5 yrs. Totals 102,550 1331
After 3.7 years New New New Bal. Pmt.
Term 73,863 651 19.2 1,153 250 .4
0 0 0 2,745 360 .7 0
0 0 0 0 0
After 4.4 years New New New Bal. Pmt.
Term 72,760 1,261 6.2 0 0 0
0 0 0 0 0 0
0 0 0 0 0 0 Out of
debt in 10.2 yrs.
105
Under water?

• Mortgage 7 600
• Auto loan 10 250
• Cr Card 19 100
• Cr Card 25 150
• Doctor 18 200
• Dentist 18 100
• 1,400

• 7
• 10
• 10
• 25
• 10
• 18

• 600
• 250
• 80
• 150
• 120
• 100
• 1,200

• Some lenders will reduce their interest rates if
  you ask - especially if you indicate that you are
  shopping around for better rates.