Working With Credit. PBL Presentation, 10/20/2004 By Rick Christoph. What is Credit?. Credit is a loan –You borrow $$! Actually, you are buying money! Credit is not: Prestige Cool Special. Why do we have so much credit?. We want it now! We want EVERYTHING now
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Working With Credit PBL Presentation, 10/20/2004 By Rick Christoph
What is Credit? • Credit is a loan –You borrow $$! • Actually, you are buying money! • Credit is not: • Prestige • Cool • Special
Why do we have so much credit? • We want it now! • We want EVERYTHING now • No $$? No sweat – charge it. • Let’s get that new car, TV, Clothes! • What we are doing is to mortgage our future for today
How much does it cost? • Average household has $9,000 in debt! • Many have 0 – what do the others have?? • Look at all the debt consolidation firms • Why are they around? • To make money from the suckers! • Take a look at this credit application • Don’t be a sucker!
How long does it take to payoff? • Take that $9,000– what would the minimum payment be? • Usually, 2.08% per month is the minimum • Assume a 21.9% interest rate • .028 * 9,000 = 252 OK, how long to payoff WITH NO OTHER PURCHASES? • http://cgi.money.cnn.com/tools/debtplanner/debtplanner.jsp
In Trouble? Get another card! • The dumbest possible idea • How much does that cost you? • http://www.credit-card-applications-center.com/1/bad-credit-credit-cards.php • How about a payday advance? • http://www.loan-till-payday.com/faqs.asp • HOW MUCH IS THE FINANCE CHARGE?The Annual Percentage Rate (APR) on a typical 14 day loan is 782.14%, which is $30.00 per every $100.00 borrowed. You can also refinance your loan.
How to use credit • Know good vs. bad debt • GOOD – items last longer than debt: • used for investment • Critical items you must have • BAD – debt lasts longer than item • Buying a pizza (stuff that is gone before the bills arrive)
INVEST in YOU • Pay off the debt! • http://money.cnn.com/pf/101/lessons/9/ • Build a cushion • Cash to cover short term problems • Invest in yourself • http://cgi.money.cnn.com/tools/savingscalc/savingscalc.html
WOW! • It will take 25 years to pay off the 9,000 and you get to pay an extra 14,000 in interest. • YOU PAY – $23,000 • If you invest the $252 a month for 25 years – • YOU GET $225,724.36 • Let’s you know why firms like the credit card business!
More WOW • About Tax Deferred Investments -- Your 252 a month • GETS YOU $282,522.73 • Invest in 401K, 401a, 403b • How do these work? • Immediate tax savings and growth!
How about cars? • Cars are fun – and expensive • Average payment time > 64 months! • What does “upside down mean” • How do we get upside down • Trade too fast • No down payment • Fast depreciation • Should you let it be repossessed? • http://money.cnn.com/2004/09/23/pf/debt/chatzky_intronew/index.htm
What is a “credit score” • Score developed by Fair Isaac & Co. • Called a FICO score • Used to determine how much you pay for credit cards, car loans, mortgages • How is your score? • http://www.bankrate.com/brm/fico/calc.asp
What is a mother to do? • Live BELOW your means • Use debt for investments that appreciate • Be an owner – not a borrower • Learn from other’s mistakes • START early
GreatWebsites • http://www.bankrate.com/dls/rate/calc_home.asp • http://www.stretcher.com/index.cfm • http://www.schwab.com/ • http://flagship.vanguard.com/VGApp/hnw/PersonalHome • http://money.cnn.com/