Credit Wisdom. Managing Money & Credit: A Lifelong Skill.

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.

What’s Next? Life After High School

60%

40%Work force

School: 2-year, 4-year,

or vocational school

Learning Boosts Earning

Education Average 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 don’t pay off their balance

•

$9,300 = average debt per household

America’s 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%

• 1985-1994– Fell to 4.8%

• 2004– 1.8%

• 2005– -0.5%

• 2006– -0.7%

• Hasn’t 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– Doesn’t seem like real

money– Easy to overspend

Use Credit Wisely

You should use credit to buy:– House – Car– Education (student loan)

and you’ll 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 won’t 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 money—equivalent 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 =

391.07%

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