Presentation on theme: "How to Use Them, But Not Abuse Them"— Presentation transcript:
1 How to Use Them, But Not Abuse Them Credit Card DebtHow 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 statistics78% of undergraduate students (18-25) have credit cards (up from 67% in 2002)32% of students have four credit cards or moreOne in four students owes more than $3,000Nearly 10% owe $7,000 or moreIn 2002 more than 100,000 people under the age of 25 filled for bankruptcy2004 Nellie Mae Study
4 Plastic Money operate on a credit limit and revolving basis Credit Cardsoperate on a credit limit and revolving basisif 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 limitLate payment feesTransaction feesOther miscellaneous feesread the fine print!!!
8 Credit Cards: majority of students use credit cards responsibly Some positivesmajority of students use credit cards responsiblyprovide convenience and securityallow 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 disadvantagescollege students are more likely to run up debts they can not pay than other types of credit card userscollege 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 lateimpaired credit ratingmore difficult and costly to obtain credit latermany students pay only the minimum amount due each month.Career choices can be limitedSome 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 $1,000Owning four or more credit cardsCarrying a balance each month
13 30 years and total cost would be $7,733.49 Credit Card DebtHow 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 monthDon’t let banks increase your credit limitSource: 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 cardUse a card that has no annual fee and lower interest ratesKnow all of your card’s hidden feesAlways pay more than the minimum amount each monthPay on time, all the time.
17 Credit Card ABCD’sA 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 loanBased on credit account information in your credit reportAn automated credit evaluation toolComparable 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).
20 To Maximize Your ScoreDon’t procrastinate – pay all your bills on timeAvoid 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 favorablyMinimize the opening of new revolving accountsSelf explanatory
21 What is the true cost of paying the “minimum” Suppose:Credit card balance = $8,000Interest rate (APR) = 18%Minimum payment = 2% of balanceHow long would it take to pay it off?647 months / 54 yearsTotal interest paid = $22,931This assumes you STOP using the credit cards!It will take even longer if you don’t stop!Self explanatory