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Credit Wisdom Credit Wisdom

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

Why Credit is Important • FICO or credit score: • Credit Card Issuers & 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 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 What’s Next? Life After High School

Learning Boosts Earning Education Average Annual Income Professional $71, 258 Doctorate $60, 729 Master's 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 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 • 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 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 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 • America’s Love of Credit • 1. 6 million bankruptcies were filed in 2004 • Americans are declaring bankruptcy at 10 x the rate they were during the depression

Personal Savings Rate Declining • 1974 to 1984 – 10% • 1985 -1994 – 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 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 – 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 – 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 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: – 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 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 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 • 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 What Not to Use Credit For: Pay Day Loans

Payday Loans / Check Cashing Stay Away! What is it? – Cash Loan – 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 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 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 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