Presentation on theme: "Credit Use & Debt Reduction with Power Pay Florida Saves 2020 See Your Future Clearly."— Presentation transcript:
Credit Use & Debt Reduction with Power Pay Florida Saves 2020 See Your Future Clearly
What is Credit? Commits future assets or income to pay for something today You get cash, goods, or services now, and then pay for it later. Installment vs. Open-ended/Revolving
Pros and Cons to Using Credit Advantages Disadvantages
Credit Cards The National Average on accounts assessed interest was 13.67% (Federal Reserve, 2011) Credit card statement –Previous balance –Purchases –Cash advances –Payments –Finance charge –New balance –Minimum payment due and Deadline –Time to payoff the balance if only paying the minimum
The Credit Score Summarizes your creditworthiness based on your credit report Married couples have separate scores Impossible to have a perfect score unless youve had an account open for at least 15 years.
FICO SCORES FICO scores provide a guide to future risk based on credit report data The assumption = the higher the credit score, the lower the risk
Where do Floridians Fall? Floridas Average Credit Score The National Average Credit Score As of 02/10/2010
Cost of Borrowing FICO SCORE The Difference Your Score Makes 760-850save an extra $36,626 700-759save an extra $23,526 680-699save an extra $12,905 660-679 640-659 PAY an extra $26,430 620-639 PAY an extra $60,789 Floridas Average Credit Score
The Importance of a Positive Credit History Ability to gain employment Cost of Borrowing –Lower Interest Rates –Ability to get different types of loans Renting Utility and cable companies may check to start an account
The Cost of Credit Score Taking out a Home Mortgage of $200,000 for 30 years Credit Score APR Monthly Payment Difference Additional 30 yr Cost 760-8504.843$10550 Best option 700-7595.063$1081$26$9360 680-6995.239$1103$48$17,200 660-6795.452$1130$75$27,000 640-6595.880$1184$129$46,440 620-6396.423$1254$199$71,640
Report vs. Score Reports are based on information obtained by: –TransUnion, Experian, and Equifax from your lenders –The data is used for the scores Scores created by FICO from reporting agency information –It is lowered with: Late payments Reaching/Exceeding Limit High Debt to Income Ratio New Credit Requests
New Legislation More accessible Credit Scores Jan. 1, 2011Risk Based Pricing Legislation New disclosure rules regarding credit reports & scores. Requires lender to provide applicant with credit score used to determine rate
How To Obtain Credit Report To request your free credit report go to annualcreditreport.com or call 1-877-322-8228 Complete the request form and mail to: Annual Credit Report Request Service P.O. Box 105281 Atlanta, GA 30348-5281
How to Systematically Reduce Debt Six Step Process
Step 1: Stop Using Credit Stop –Charging new items Increases what you owe! –Taking on additional credit
Step 2: Assess the Problem Understand what happened –Job loss? –Didnt get pay raise? –House/apartment you cant afford? –Health crisis? –No savings? –Divorce? –Spending problem? –Expect security from wrong sources –Failed communication –Take care of others
Step 3: Break Your Challenge Into Manageable Steps Define your goal: –Specific - $10 a day –Time frame - 3 to 5 years –Measurable - Your debt balance Pay off $8000 credit card in 3 years by paying $300 per month ($10 per day saved from eating out)
Step 3: Break Your Challenge Into Manageable Steps Debt amount 12% interest 18% interest 24% interest $ 8,000 $9/day$10/day$11/day $12,000$13/day$15/day$16/day $16,000$18/day$19/day$21/day $20,000$22/day$24/day$26/day Debt Free in Three Years
Step 5: Find the Money Change your withholding Reduce your interest rates Advance Earned Income Credit Overtime Second job Break costly habits Look for ways to reduce flexible expenses. Examine ways to restructure or cut fixed expenses. Overtime or extra job Managing in Tough Times
Step 6: Fix Debt Problems Importance High interest rate Low balance Debt consolidation Negotiate and pay-off Debt Repayment Plan Methods
Step 6: Fix Debt Problems Free service online Compares all previous methods Time-line printed with
What will Improve the Score? No quick fixes – time is the factor Use your credit but perhaps only use on specific purchases Pay your bill on time, every time, for the full amount. Keep balances low on credit cards (i.e. zero) Pay off high interest first and fast
How Do I Stop Getting Offers! Tired of unsolicited credit and insurance mail? You may request that consumer credit reporting companies exclude your name from lists for pre- approved, unsolicited credit and insurance offers. To find out more, please call 1–888–5OPTOUT (1–888–567–8688).
Correcting Credit Report Errors Get a copy of your credit report, verify information. Highlight the error's Write a letter of dispute that includes an explanation of the error's Locate and copy –any additional information that can help establish that the item is an error Send to the credit reporting agency –highlighted copy of your credit report, –your letter of dispute, –and a copy of any additional information
After You Dispute the Information Ensure that the error is fixed Your score will be affected if it stays on the report If you cannot resolve a disputed item: –You have the right to attach a 100-word statement, –Explaining the nature of your disagreement free of charge –Statement will become part of your credit file –It will be included each time your credit file is accessed.
Take Home Message Be responsible with credit Self control Protect yourself Check credit report frequently Pay more than the minimum Be careful of debt consolidation & credit repair companies
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