C.A.R.E. Credit Abuse Resistance Education A program of: WV State Bar Association WV Bankruptcy Courts WV Bankruptcy Law Committee. What if You Bought…. A plasma TV for $1,200 A computer for $500 A new car stereo for $300 Totaling: $2,000
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C.A.R.E. Credit Abuse Resistance Education A program of: WV State Bar Association WV Bankruptcy Courts WV Bankruptcy Law Committee
What if You Bought… A plasma TV for $1,200 A computer for $500 A new car stereo for $300 Totaling: $2,000 • You use your credit card to buy the system making monthly payments of $300 • Assume you never miss a payment and the annual percentage rate is 8%
How Much Would it Be? Your total cost would be $2,052 and it would take you 7 months to pay for it!
What If… 18% APR • Your credit rating is poor and you must pay an interest rate of 24% • You also only pay the MINIMUM MONTHLY PAYMENT of only $50 per month 23% APR
Now, How Much Would it Be? • It would take you 82 months (almost 7 years) to payoff the system • Your total payments would be $4,062
Your Choices • Pay $2,000 cash • Pay $2,052 over seven months • Pay $4,062 over seven years
How Much Could I Save? If you took the $2,000 you save as a result of paying cash for the stereo and invest it together with $2,000 every year until you are age 60…
…MILLIONS You would have a nice fat bank account totaling $1,200,000!
What is Credit? • Credit is the ability to borrow money • Borrowing is the creation of debt • Debt is what you owe
Reasons for Having a Credit Card • Emergencies • Large purchases (necessities) • Establish a credit history • Identification • Safety
Types of Cards • Debit Cards • When used, money is drawn directly from your bank account, just like writing a check • If there is no money in the account, the card cannot be used • Debit cards do not extend credit
Types of Cards • Charge Cards • Issued by retail stores to be used exclusively at that particular store (such as Macy’s, Best Buy or Sears) • If a balance is carried from month to month, the interest rate is usually in excess of that offered by other card issuers
Types of Cards • Credit Cards • Involves the extension of credit by the card issuer • Credit cards are accepted at almost any store • If a balance is carried from month to month, interest rates are set forth in the cardholder agreement
What is Interest? • Interest is the amount that a lender charges to borrow money • The higher the interest rate, the more money you pay • Interest rates vary from company to company
INCOME Gross wages $2,000 Payroll deductions (400) Net monthly pay $1,600 What is a Budget? EXPENSES Rent $ 500 Utilities 100 Food 200 Clothing 20 Laundry 20 Transportation 200 Recreation 30 Insurance 90 Installment Payments 350 Misc. Expenses 50 Total Expenses $1,600
What is so importantabout Good Credit? • Your history of payments, employment, and salary makes you a good candidate for a loan • You can get a better interest rate – lower payments • You will be viewed as financially trustworthy – better loan terms • May help you rent an apartment and obtain employment – most landlords and prospective employers will look at your credit report
What is so importantabout Bad Credit? • Your history of late payments, not paying your debts or borrowing too much money makes you a poor candidate for a loan • You will pay two or three times more than the original price • You may have trouble getting a loan, a credit card, a place to live, a student loan or employment
Consequences of Credit Abuse • Divorce or relationship problems • Depression or suicide • Bad credit rating • Reduced performance at school or work • Being turned down for a loan for a house, car or job • Having to drop out of school • Not having money to retire or help your children • Creditors calling your home or work • Being sued and having judgments against you – wages garnished • Bankruptcy
Simple Rules to Remember • Have a budget and live within it • Don’t have more than one credit card • Shop around and get the best deal • If you can eat it, drink it, or it costs less than $10, don’t charge it • Use a debit card, check or cash whenever possible • Pay off the balance every month • Never make just a minimum payment • Understand the difference between needs and wants • If you are borrowing to pay a credit card debt – STOP – you are in trouble