Credit and Debit

1. Credit and Debit Part III

2. Revisiting the Decision Making Process • Identify your goal • What is it that you want ot buy with credit? • Gather Information • What are the terms of the credit offer that you are considering? • What is the interest rate? • How long will it take you to pay it off? • What will the minimum payment be? • What will be the extra cost of using credit?

3. Revisiting the Decision Making Process • Examine Alternatives • If you decide to save for the purchase instead, how long will it take? • How much would you have to save each month? • Could you invest the money to reach your goal sooner? • Analyze Outcomes • Do you really need the item right now or can it wait? • How will both options affect your budget and savings for other financial goals?

4. Revisiting the Decision Making Process • Make a Decision • Decide whether or not credit is the best option for you. • Evaluate Results • Look at the impact that making the purchase on credit instead of savings for it has had on your budget and other financial goals. • Would you make the same decision if you had to do it all over again?

5. Pitfalls to Avoid with Credit • Always read the fine print • Consider a loan for large purchases to avoid higher interest rates • Be choosy about your credit – get only what you need • Pay as much as you can each month • Do not pay bills late • Pay bills at least a week before they are due • Option: arrange for automatic bill payments each month • Get into a savings mode so that you rarely need loans or credit to make purchases

6. 70-20-10 Rule • Spend 70% of your income on living expenses • Save or invest 20% of your income for financial goals and emergency expenses • Spend 10% on debt payments such as car loans, school loans and credit cards

7. Credit Related Record Keeping Make sure to keep the following records: • Terms of agreements and changes to terms of agreements • Receipts to compare for accuracy to your monthly bill • Monthly statements for at least one year • Tax related items (ex. Tax return) for at least 7 years • A list of your credit card number and related telephone numbers for each card issuer in case your cards are lost or stolen. Keep them somewhere safe and that is easily accessible in case you need them

8. The Dark Cloud of Debt • Stress if debt can affect your health • Excess debt can affect relationships • In some states, once married debt becomes the spouse’s responsibility too

9. A Way Out • Put away the plastic and live entirely on a cash basis • Make a personal commitment to repay all of your debt • Find out exactly how bad it is and how much you really owe • Create a repayment plan that you can stick with

10. How to Pay Off Debt • Method One • Take any additional money and use it to repay off the debt with the smallest balance first • Then pay off the next smallest debt until all of the debt is repayed. • Gratifying because you see immediate results • Method Two • Concentrate first on paying off the debt with the highest interest rate • Saves more interest charges over time, but progress is harder to see • Both methods require patience and persistence

11. Debt Can Be Overwhelming • Even the most responsible individuals can get into debt due to situations beyond their control. What to do? • Contact creditors immediately and tell them youe situation. They want to be repaid and most of them will work with you to help your to repay them. It cost creditor money to send your account to collections, so they would rather try to work something out.

12. Debt Can Be Overwhelming • If your creditor are unwilling to work with you, try to seek help from an organization such as the Association of Independent Consumer Credit Counseling Agencies (AICCCA) Website: www.aicca.org . This website will give you resources in your local area to locate registered nonprofit credit counseling agencies. These agencies can contact creditors and work out a budget and repayment plan that you can afford. Taking this option can affect your credit rating so don’t choose this lightly. BE CAREFUL OF SCAMS! • The last resort is bankruptcy.

13. Bankruptcy – The Last Resort • Bankruptcy is a legal process to get out of debt when you can no longer make all your required payments. Types of Bankruptcy • Chapter 7 • Allows you to erase most of your debt • Must be unemployed or have a very low income • Must undergo financial counseling as part of the process • Chapter 13 • Allows you to repay many of your debt over a period of time – usually not more than 5 years • Court typically oversees the repayment planto make sure that your debts are repaid

14. Bankruptcy – More Info. • Not all debt will be erased with bankruptcy • Examples: school loans, child support, alimony, penalties and fines for crimes • Bankruptcy law changed in 2005 – much harder to file Chapter 7 Bankruptcy

15. Consequences of Bankruptcy • Stays on credit report up to 10 years • Much harder and more expensive to buy a house and get other credit for those 10 years • Costly for everyong else – lenders raise rates all on loans and services in order to cover their losses • It can provide a clean slate for those people who filed bankruptcy due to unforeseen or unavoidable situations • For others, bankruptcy is the result of financially irresponsible behavior in which these people decided to default on their obligations

16. The Law and Order of Debt • Your Rights – The Truth in Lending Act • Lenders must tell you in writing the true interest rate and total finance charge before you sign a credit application • Lenders must be truthful and not mislead you with their advertisements • With certain types of credit – you have the right to cancel an agreement with a lender within 3 days assuming that you return the money that you borrowed • If you are ever turned down for a loan, the lender must tell you the specific reason for the denial as well as the name and address of the credit reporting agency that provided the information.

17. The Fair Debt Collection Practices Act (FDCPA) • The Fair Debt Collection Practices Act (FDCPA) protects you from harassment by creditors. If your creditor hires a collection agency to get you to repay a deby the debt collector is not allowed to: • Use abusive language with you • Call at unreasonable hours (before 8am or after 9pm) • Call an excessive number of times • Threaten to notify your employer or friends that you haven’t paid your bills • Attempt to collect more than what you owe • Send you misleading letters that appear to be from a government agency or a court of law

18. The Fair Debt Collection Practices Act (FDCPA) • If a collection agency does any of these things, consumers can sue the collector in state or federal court. • Consumers can also report a debt collection problem to the state Attorney General’s office and the Federal Trade Commission (FTC).

19. Adding It Up Credit can be a valuable financial tool if it is used wisely. Remember… • Know the real cost of debt • Don’t use credit to live beyond your means • It’s all about the details – the fine print • Pay as much as you can, as early as you can

20. Remember… BE CAREFUL NOT TO OVERSPEND Especially on credit cards. It is always easier to get into debt than to get out of it.