1. How to Use Them, But Not Abuse Them
Credit Card Debt
How to Use Them, But Not Abuse Them

2. A Look at Credit Card Debt
There are currently 1.2 billion cardholders of all ages with a total of $650 billion in debt.
Americans charged $1.3 trillion to credit cards and $400 billion to debit cards

3. Students & Credit Cards
Some recent statistics
78% of undergraduate students (18-25) have credit cards (up from 67% in 2002)
32% of students have four credit cards or more
One in four students owes more than $3,000
Nearly 10% owe $7,000 or more
In 2002 more than 100,000 people under the age of 25 filled for bankruptcy
2004 Nellie Mae Study

4. Plastic Money operate on a credit limit and revolving basis
Credit Cards
operate on a credit limit and revolving basis
if not paid-in-full within grace period, interest is charged on the remaining balance

5. What is the average rate for a credit card?
14.71%

6. What is the highest interest rate currently charged on a credit card?
41%
That’s almost half!!!

7. Fees, fees, and more fees Annual fee for just having the credit card
Over the limit fees, charged whenever you exceed your credit limit
Late payment fees
Transaction fees
Other miscellaneous fees
read the fine print!!!

8. Credit Cards: majority of students use credit cards responsibly
Some positives
majority of students use credit cards responsibly
provide convenience and security
allow students to establish credit histories

9. Analysis of consumer spending shows customers spend 20% to 30% more using credit cards than they would with cash!

10. Some disadvantages
college students are more likely to run up debts they can not pay than other types of credit card users
college students (with limited or no credit history and income) are charged higher interest rates

11. And still more bad news…
many students do not understand the consequences of incurring excessive debt and making payments late
impaired credit rating
more difficult and costly to obtain credit later
many students pay only the minimum amount due each month.
Career choices can be limited
Some are forced to file bankruptcy (1.3 million cardholders filed for bankruptcy last year)
A few students, so overwhelmed with debt, have committed suicide

12. Characteristics of high-risk use
Average credit card balances over $1,000
Owning four or more credit cards
Carrying a balance each month

13. 30 years and total cost would be $7,733.49
Credit Card Debt
How long will it take to pay off $2,500 at an interest rate of 17% if you pay only the minimum balance due?
30 years and total cost would be $7,733.49

14. What is the average # of credit cards a person holds?14

15. Credit Card Don’ts Don’t use them for cash advances
Don’t charge more than you can pay off in a month
Don’t let banks increase your credit limit
Source: USA Funds Life Skills -Module 1

16. Credit Card Do’s Limit the number of cards you have
Use a debit card vs. a credit card
Use a card that has no annual fee and lower interest rates
Know all of your card’s hidden fees
Always pay more than the minimum amount each month
Pay on time, all the time.

17. Credit Card ABCD’s
A credit card is helpful for emergencies, but emergencies rarely happen at the mall!
Buying on SALE, is still SPENDING, not SAVING!
Credit card debt is not an investment, but it does reduce your ability to invest!
Debt from credit cards can make it more difficult to achieve your financial goals.

18. What’s a credit score? A credit score is: 300-850
A numerical forecast of the likelihood you’ll successfully repay a future loan
Based on credit account information in your credit report
An automated credit evaluation tool
Comparable to your “credit GPA”
Credit score is NOT based on the identifying information in a consumer’s credit report, such as name, address, SSN, birth date, and employment history.
It also is not affected by race or gender since these are not permissible factors in the credit granting process.
“Soft Inquiries” also do not affect credit scores (see SLIDE #11 for more on soft inquiries).

19. What factors affect your score?

20. To Maximize Your Score
Don’t procrastinate – pay all your bills on time
Avoid owing more than 30% of your available revolving credit
“Less is more” – keep your revolving debt as low as possible
“Older is better” – older accounts score more favorably
Minimize the opening of new revolving accounts
Self explanatory

21. What is the true cost of paying the “minimum”
Suppose:
Credit card balance = $8,000
Interest rate (APR) = 18%
Minimum payment = 2% of balance
How long would it take to pay it off?
647 months / 54 years
Total interest paid = $22,931
This assumes you STOP using the credit cards!
It will take even longer if you don’t stop!
Self explanatory