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Credit Abuse Resistance Education (CARE) Program

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Transition to Credit Cards: ... If you're going to carry a balance on your card ... Discussion of what difference a person s credit score can have on their ... – PowerPoint PPT presentation

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Title: Credit Abuse Resistance Education (CARE) Program


1
Credit Abuse Resistance Education (CARE)
Program
U.S. Bankruptcy Court Southern District of
California
2
CARE Program
  • Consumerism Wants v. Needs
  • Budgeting, Saving and Investing
  • Credit Cards
  • Why Should You CARE About Your Credit Score?
  • Student Loans
  • Bankruptcy

3
Consumerism!
4
Wants vs Needs
4
5
Consumerism Good or Bad?
6
Dont Buy Stuff You Cannot Afford
7
Responsible Consumption
  • You can spend more on needs if you spend less on
    wants.
  • Set a budget and stick to it.
  • Learn to save to buy a house or a car.

8
Pay Now
  • Pay cash for wants.
  • Write a check.
  • Use debit cards.
  • Debit cards take money out of your checking
    account.

9
Have in Your Account!
  • ATM fees.
  • Overdraft charges.
  • Bouncing a check can harm your credit.

10
Budgeting, Saving and Investing
10
11
What is a budget?
  • A budget helps you manage your money.
  • Calculate your income.
  • Calculate your expenses.

11
12
Budgeting
Income Expenses
Gross Wages 3,000 Rent 750
Less Payroll Deductions 500 Utilities 50
Net Income 2,500 Food 250
Clothing 25
Laundry 20
Transportation 300
Recreation 30
Insurance 90
Misc. Expenses 75
Total Expenses 1,590
12
13
Saving
  • Simple interest
  • Interest is paid only on the original amount
    deposited not on any accumulated interest.
  • Compound interest
  • Interest on interest
  • Adds interest to the principle balance each
    period.

13
14
Simple v. Compound Interest
Year Simple Interest (10) Compound Interest (10)
0 100 100
1 110 110
2 120 121
5 150 161
10 200 259
20 300 672
30 400 1,744
40 500 4,526
50 600 11,739
14
15
The Beauty of Compounding
  • Would you rather have 1,000,000 today or have a
    penny today and double your money everyday for a
    month?

15
16
The Beauty of Compounding
  • 1,000,000 at 10 interest
  • 1,100,000
  • .01 and your money doubled everyday
  • 10,737,418.24

16
17
Save for Emergencies
18
Credit Cards
18
19
For Big Ticket Items
  • Unless youve saved lots of cash

youll probably use a credit card.
20
Credit Card Lingo
  • Grace Period
  • Annual Fee
  • Cash Advance Fee
  • Late Fee
  • Annual Percentage Rate (APR)

20
21
Annual Percentage Rate
  • ANNUAL MEMBERSHIP FEE Refer to your statement in
    the month in which the fee is billed.
  • RENEWING YOUR ACCOUNT You may have your annual
    membership fee credited to your account if you
    close your account within 30 days from the
    mailing or delivery date of the statement
    containing the fee, even if you use your card
    during that period. You may call the Customer
    Service number or write to the Customer Service
    address on your statement during this 30 day
    period and your account will be terminated we
    will credit your account for the amount of the
    annual fee.
  • ANNUAL PERCENTAGE RATE Refer to the Rate Summary
    section of this statement. Your periodic rates
    and APRs may vary.
  • RATE AND ACCOUNT SUMMARIES The purchase and
    advance features of this account may be listed in
    the Rate Summary Section of this statement under
    the following titles Standard Purch, Purch/Adv,
    Standard Adv, and various numbered Offers. The
    Account Summary section of this statement
    includes on the PURCHASES line subtotals for all
    purchase features, and on the ADVANCES line
    subtotals for all advance features, of the
    Previous Balance, new Purchases Advances,
    Payments Credits, FINANCE CHARGE and New
    Balance amounts.
  • PERIODIC RATES (D) and (F) indicate a daily
    periodic rate. (M) indicates a monthly periodic
    rate.
  • Different banks charge different APRs.
  • Shop for a credit card.
  • Pay close attention to various late fees and
    penalties.

FINE PRINT!
21
22
Credit Card Act 2009
23
Can Students Get a Credit Card?
  • A credit card CANNOT be issued to someone under
    21 unless the person
  • Has a co-signor (over 21) or
  • Can prove ability to repay.
  • Before the law changed, the average college
    student owed about 3,000 in credit card debt.

24
Credit Card Promises Tricks
  • Promise 1 As low as 9.99 APR!
  • Promise 2 Up to 5 cash back!
  • Promise 3 Your card has a 3,000 credit limit.

25
Downside to Credit Cards
  • Exceeding your budget.
  • High interest rates and increased debt.
  • Credit card fraud.

26
Credit Card Tips
  • Have only one credit card.
  • Do not
  • Open new accounts just for low introductory
    rates.
  • Max out your credit card.
  • Take cash advances.
  • Let anyone else use your card!

26
27
Debit Card Basics
  • Debit cards are linked to your checking account.
  • When you buy something the money is taken out
    (debited) from your account.
  • Debit cards may help reduce spending.
  • Limited to the money in your account.

28
Downside to Debit Cards
  • Do not help you build or improve credit rating.
  • Beware of overdraft fees.
  • Protect your PIN!

29
Pay Up!
  • Calculate how long it will take to pay off credit
    cards. Visit Bankrate.com.
  • Make a payment plan and stick to it!
  • Try to pay the entire amount due each month by
    the due date.
  • Pay more than the minimum payment amount.
  • Pay higher-interest cards first do not miss any
    payments on any card.

30
Get It On Credit!
31
Compare 1,000 Credit Card Balance
Interest Rate Minimum Payment Calculated _at_ Minimum Monthly Payment Months Total Interest Paid Total Payment
15 2 20 118 851 1,851
30 3 30 211 3,089 4,089
32
Worth the Cost?
  • Before you buy something on credit, ask yourself
  • How much will it really cost?
  • Can I actually afford it?
  • Is it better to wait and pay in cash?

33
Paying Late
  • If you make a credit card payment late, your
    credit score will be negatively impacted.
  • The interest rate you pay may increase sharply!
  • And late fees may be added!!

34
Why Should You CARE About Your Credit Score?
35
Your Credit Report
  • Credit reports provide information regarding how
    you pay your bills.

Having no credit history can have adverse
consequences.
36
Credit Report
  • 3 credit-reporting agencies
  • Equifax
  • Experian
  • TransUnion
  • Free credit report AnnualCreditReport.com
  • 80 of credit reports contain mistakes!

37
Your Credit History
  • Auto loans.
  • Leases.
  • Mortgages.

38
Your Credit (FICO) Score
  • A 3-digit number between 300 850.
  • The higher, the better!
  • FICO scores are not part of your credit report.
    You must pay a fee.
  • To obtain your scores, visit www.myfico.com.

39
Student Loans
39
40
Student Loan Traps
41
Student Loans
  • Second largest source of debt for American
    households.
  • Average student graduates with a 25,000 loan
    balance.
  • More student loan debt than credit debt.

42
Monthly Cost of Student Loans
Loan Amount Interest Rate Repayment Plan (Years) Monthly Payment Total
10 288 34,524
25,000 6.8 20 191 45,802
30 163 58,674
10 1,472 176,620
120,000 8.25 20 1,022 245,394
30 902 324,547
43
Shop Around
  • Search for the best interest rate/terms.
  • Your schools financial aid package is not always
    the best option.
  • Consider fixed versus variable interest rates.
  • Subsidized versus unsubsidized loans.
  • Choose public, not private loans.

44
Student Loan Laws
  • College Cost Reduction and Access Act (2007).
  • After 10 years of public service, some federal
    student loan balance forgiveness.
  • College Cost Reduction and Access Act (2010).
  • Reduces payment amount to a percentage of income.

45
Manage Student Loan Debt
  • Keep track of what you owe and changes in terms.
  • Pay the interest during school.
  • Use only for needs.
  • Tuition.
  • Do not use your student loans for wants.
  • Spring break!
  • Pay off higher interest loans first.

46
Ways to Reduce Costs
  • Search for grants or scholarships.
  • Get a job on campus or live at home.
  • Consider lower cost options.
  • Community colleges or
  • State universities.
  • Try to graduate early if possible.

47
Bankruptcy
47
48
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49
Consequences of Not Paying
  • Collection phone calls.
  • Late fees, over-limit fees, interest compounded.
  • Psychological consequences.
  • Damage to your credit score increases future
    borrowing costs.
  • Bankruptcy.

49
50
Bankruptcy
  • Bankruptcy provides a fresh start.
  • Requires truthful, accurate information about
    assets.
  • May require repayment of a percentage of debt.
  • Stigma You have not used credit properly.
  • Stays on your credit record for years.

51
Types of Bankruptcy
  • Chapter 7 Property is sold by a trustee to pay
    debts.
  • Some old debts are discharged or written off.
  • Student loan debt is not dischargeable!
  • Chapter 13 A person with regular income can
    keep property and pay debts over time.
  • 3 to 5 years.

52
CARE Program
  • Consumerism Wants v. Needs
  • Budgeting, Saving and Investing
  • Credit Cards
  • Why Should You CARE About Your Credit Score?
  • Student Loans
  • Bankruptcy

52
53
U.S. Bankruptcy Court Southern District of
CA www.casb.uscourts.gov/CARE
Visit the CARE Web site Students page
Credit Abuse Resistance Education Program
53
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