C.A.R.E.

1. C.A.R.E. Credit Abuse Resistance Education A program of: U.S. Bankruptcy Court, Western Missouri & Kansas Districts The Kansas City Bankruptcy Bar Association University of Missouri Extension Service

2. Why ? • People under age 25 are fastest growing group of bankruptcy filers • One out of five young adult households are in debt hardship (over 40% of income goes to debt payments each month) • In last decade, youngest adults (18-24) saw credit card debt increase 104% • Graduating college students average $20,402 of debt-- $3,262 on credit cards • Individuals seeking credit counseling have average annual salary of $29,425; average debt excluding mortgage or rent of $23,184

3. Credit Education Badly Needed • 68% teens report never discussing responsible credit card use with any family member • 31% teens, 18-19, have credit card in own name • 71% of young adult card holders revolve their balances compared to 55% of all cardholders

4. Different card types Using cards wisely Choosing best card for you Your credit rating Consequences of credit abuse Avoiding credit problems Presentation Overview

5. Make the Credit-Money Connection • When you pay by credit card, you still have to pay for the purchase with “real” money. • If you cannot afford to buy something with cash, you likely can’t afford it using credit. • Using credit means paying for today’s purchases with tomorrow’s income.

6. Reasons for Having a Credit Card • Emergencies • Large purchases (necessities) • Establish a credit history • Facilitate other transactions • Identification • Safety

7. Types of Cards • Debit • Charge cards • Credit cards

8. Choosing a Card • Annual Fee • Interest Rate --Introductory --Balances v. Cash Advances --Fixed v. Variable --Default Interest • Grace Period • Method of Computation • Rewards

9. Costly to Maintain a Balance • In 2001 average family carried a balance of $7000; now up to $9200 • At 20% interest, pay $153 a month in interest alone • That’s $73,440 from age 25 to 65 that could be used for other things • If you saved/invested the $153 instead – at 5% return equals $233,481; at 7% it would be $401,600

10. Making the Minimum Payment Sometimes people think they are handling their debt by making minimum payment

11. Minimum Payment • For many years it was 2% of the balance. On most cards that was just .5% going toward principal with the rest paying interest • Now minimum payment will be 4% of the balance. Makes minimum payments higher (double) but balance will go down faster

12. Paying the Minimum on $2000

13. Cash v. Credit

14. Comparing Loans

15. Not everyone has a credit report Getting started can be a Catch 22 Found at three national credit reporting agencies Limitation of who can see your credit report Contains extensive information Negative info can result in credit denial or higher interest Negative info reported for 7 years; bankruptcy for 10 years Your Credit Report

16. Make it impossible to complete degree Denial of employment Denial of credit Higher interest rates Higher insurance rates Denial of a lease Denial of student loans Emotional stress Consequences of Credit Abuse

17. Seven Steps to AvoidCredit Abuse Step # 1 Distinguish between needs and wants

18. You Fail When: You sacrifice what you want most for what you want now!

19. Avoid Credit Abuse Step # 2 Have only one credit card

20. To Further Control Your Credit Use: Opt for a low credit limit on your one card

21. Avoid Credit Abuse Step # 3 Pay off your balance each month

22. A Good Way to Do This: Don’t charge anything unless there is already money in the bank to pay for it.

23. Avoid Credit Abuse Step # 4 Never make only the minimum payment

24. Avoid Credit Abuse Step # 5 If you must carry a balance monitor it each month

25. If you find you are getting deeper in debt: Stop digging the hole!

26. Avoid Credit Abuse Step # 6 Make a monthly budget and follow it

27. Don’t Like the Word “Budget”? Think of it as your “Personal Financial Survival Guide”

28. Avoid Credit Abuse Step # 7 Use cash or a debit card whenever possible

29. Two Personal Rules Don’t use a credit card for any purchase less than $10 If you can eat or drink it, don’t charge it