Out Of Hock & Out Of Debt by Harry Dahlstrom Tom Craddock

1. Out Of Hock & Out Of Debtby Harry DahlstromTom Craddock

2. Most people have access to easy credit. Easy Credit • You create your own credit problems–not the banks, department stores, or credit card companies.

3. 67% of adults have at least two credit cards. Most people charge about $200 per month. Most people maintain a constant monthly balance of $1,900. Hooked on Credit

4. Debt is built on impulse—it is not built on necessity or need. More than half of the things we buy are on the spur of the moment. Impulse purchases are seldom compared for cost or quality. Impulse Buying

5. Interest is a fee charged by someone for letting you use their money. Not all credit cards charge the same interest. Interest on credit cards is generally higher than on other loans. Interest Rates

6. Over 150 million people have credit cards and 7 million of them are in default. Creditors are not out to get you—they simply want the payments you owe them. Default

7. Collection agencies are the legal agents of the people you owe money. Most agencies want to work with you and set up a repayment plan. You have rights under the Fair Debt Collections Practices Act. Collection Agencies

8. If you have credit, you have a credit report. Your report can only be examined for legitimate business or government needs. You can obtain a copy of your report. Credit Reports

9. Credit report Agencies • Free credit report every 12 months • Experian • TransUnion • Equifax • www.annualcreditreport.com • 877-322-8228

10. On your report • Identifying Information • Credit Information • Public Record Information • Reported for 7 years • Inquiries

11. Credit Scoring • FICO scores range from 300 to 850 • One late payment on an account can lower a FICO score 100 points!!

12. FICO scoring factors: • Payment history • Utilization rate • Length of time you have used credit • Pursuit of new credit • Number of open accounts • Collections • Public Records

13. How can you have a credit report if you haven’t had a credit account? • Factors resulting in a credit history for a minor: • Authorized User on an account • Identity theft Dispute Inaccurate Information now could avoid problems later.

14. The average American family earns about $47,000 a year. Most of the money goes to housing, transportation, and food. What do you spend?

15. A debt rate is the percentage of your monthly pay that you use to pay your debts. Determine your debt rate by adding up your monthly debt and dividing it by your monthly income. Most Americans have a debt rate of around 12 percent Avoiding Debt Trouble: Don’t borrow too much (Payments more than 20% of income) Maintain Adequate Savings Emergency fund $500-1000 At least 3 months of living expenses What do you owe?

16. The credit agreement always means: • Obligation to pay • Monthly payments • Their terms

17. Establishing credit • Cosigner • Apply at your bank • Obtain payment records • Apply for a secured account • Retail and gas cards are easier

18. Secured Credit • Collateral is backing the loan • What happens when a borrower fails to make payments on an auto loan? • What important change happens to every new car after it is purchased and driven off the lot?

19. Unsecured Credit CREDIT CARDS • Revolving Credit • Pay now or pay over time • Credit limit • Minimum payment due

20. Unsecured Credit • CHARGE CARDS • Pay in full monthly • Higher limits • Annual Fee

21. New Credit Card Regulations • No credit card accounts for consumers under age 21 unless the application show sufficient income or there is a co-signer. • Written permission from the co-signer is required before raising the credit limit on the account if a borrower under age 21.

22. Credit Cards • How do we know how much we are allowed to spend on a credit card account? • Can we make purchases on a credit card and avoid paying any interest?

23. Credit Cards • Why do over 50% of college students have 4 or more credit cards?

24. Auto loans vs credit cards • How is a $10,000 auto loan different from a $10,000 in credit card debt? • Interest on the auto loan stays the same • The car can be sold to pay off the debt • The auto loan has a limited loan term

25. Account debit cards • Works like a check • Easier to get • Not as widely accepted • Risk

26. Student checking accounts • Less costly for student going away for college. • No minimum balance requirement • No monthly account fee • “Fee Free” withdrawals from ATM’s

27. Prepaid debit cards • Activation fee • Monthly fee • Inactivity fee • ATM fee • Balance inquiry fee • Customer service fee • Shortage fee

28. Advantages on using credit cards • Car rental, equipment rental, hotels, phone purchases, internet purchases • Establishes your credit record • Helps take advantage of sales • Important in emergency situations

29. Disadvantages of credit cards • Encourage overspending • Carrying a balance is expensive • Future earnings committed • Payment problems can ruin your credit record

30. Your credit history could affect • Auto insurance cost • Housing • Employment • Getting any loans in general

31. Educational loans • Relatively easily available • Extended payment • Government guaranteed • Can’t pay? Contact the lean servicer. Avoid default.

32. Education Loans • $865 Billion U.S. student loan debt, more than credit card debt $693 Billion (2011) • Average is over $25,000 • 2 year default rate is 8.8% • Borrow as little as possible • Consider a less costly school • It is risky to borrow more for education than what you can realistically expect to earn in the first year after graduating. • Salary info: Bureau of Labor Statistics • www.payscale.com

33. Student Loans • A $27,000 Stafford Loan=$311/month for 10 years. (37,320) StudentLoans.gov FinAid.org •Federal education loans are less expensive and less risky than private education loans. They are less available for graduate study.

34. Rule of 3 • Check at least 3 sources for any major purchase • bankrate.com • cardweb.com • creditcards.com • americaslowestrates.com

35. 3 C’s of Credit • Capacity • Occupation • Salary • How reliable • Dependents • Expenses • Current debts

36. 3 C’s of Credit • Character • Have you used credit before? • Do you pay bills on time? • Do you own you home? • How long have you lived at you address? • How long have you had your current jobs?

37. 3 C’s of Credit • Collateral • Something of sufficient value to server as payment for the loan if payments aren’t kept current.

38. When you go to buy something ask yourself: – Do I really need it? – Do I have to have it today? – What will happen if I don’t buy it now? – Why have I gotten along without it until now? Get Serious

39. Contact your creditors TOP PRIORITY: Secured debts-house, car Utilities Food • Avoid cash advances and payday loans • Contact non-profit credit counselor CCCS Credit counselors can rebuild your relationship with your creditors. Counselors can develop a repayment plan. If you get in trouble

40. Bankruptcy stays on your record for 7-10 years. Bankruptcy can hurt your employment and borrowing status. Bankruptcy?

41. Guidelines for credit card use • Limit the number of cards • Limit credit payments to less than 20% of net income • Maintain adequate savings • Check you credit report