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P E R S O N A L F I N A N C I A L M A N A G E M E N T P R O G R A M Credit Management: Using Credit Wisely.

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Presentation on theme: "P E R S O N A L F I N A N C I A L M A N A G E M E N T P R O G R A M Credit Management: Using Credit Wisely."— Presentation transcript:

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2 P E R S O N A L F I N A N C I A L M A N A G E M E N T P R O G R A M Credit Management: Using Credit Wisely

3 C R E D I T M A N A G E M E N T2 Agenda Uses of credit Uses of credit Credit Reports / Credit Scoring Credit Reports / Credit Scoring Establishing credit Establishing credit The cost of credit The cost of credit Choosing and using credit cards Choosing and using credit cards Warning signs Warning signs Recovering from over-indebtedness Recovering from over-indebtedness Sources of Help Sources of Help

4 C R E D I T M A N A G E M E N T3 First, a few facts: Personal Credit Card Debt Personal Credit Card Debt – Median - $6,600 – Average - $9,900 61% carry balances month to month 61% carry balances month to month Almost half of all Americans are worried about the amount of debt they have Almost half of all Americans are worried about the amount of debt they have Over half have no financial plan Over half have no financial plan

5 C R E D I T M A N A G E M E N T4 Wise Use of Credit Its about behavior, not dollars! Its about behavior, not dollars! To purchase assets To purchase assets – Home – Education For convenience For convenience To take advantage of sales To take advantage of sales Emergencies (convenience) Emergencies (convenience) Big Ticket items Big Ticket items

6 C R E D I T M A N A G E M E N T5 Unwise Use of Credit To purchase consumables To purchase consumables Impulse buying Impulse buying Spending for status Spending for status Retaliatory spending (couples) Retaliatory spending (couples) Spending to feel good Spending to feel good Everyday living expenses Everyday living expenses

7 C R E D I T M A N A G E M E N T6 Qualifying for Credit Three Cs of Credit: Three Cs of Credit: – Character – Capacity – Collateral And the fourth C … Your Credit Report And the fourth C … Your Credit Report

8 C R E D I T M A N A G E M E N T7 Credit Reports Detailed account of credit, employment and residence history Detailed account of credit, employment and residence history Used by prospective lenders, employers, landlords, insurance companies, etc. Used by prospective lenders, employers, landlords, insurance companies, etc. Three Credit Reporting Agencies Three Credit Reporting Agencies

9 C R E D I T M A N A G E M E N T8 Components of a Credit Report Personal Identification Information Name Social Security number Name Social Security number Address Employment information Address Employment information Date of birth Date of birth Payment History (Trade Lines) - Credit accounts Inquiries - List of everyone who accessed your credit report within the last two years Public Record and Collection Items Public records Wage attachments Public records Wage attachments Bankruptcies Liens Bankruptcies Liens Foreclosures Judgment Foreclosures Judgment Suits Collection Agencies – overdue debts Suits Collection Agencies – overdue debts

10 C R E D I T M A N A G E M E N T9 Credit Reports Accurate Negative Information Accurate Negative Information – Pay up and wait Two years for inquiries and payments Two years for inquiries and payments Seven years for most information Seven years for most information Ten years for bankruptcies Ten years for bankruptcies Criminal Convictionsno limit Criminal Convictionsno limit – The seven-year period starts from the date that the event took place

11 C R E D I T M A N A G E M E N T10 Credit Reports Correcting Wrong Information Correcting Wrong Information 1.Inform CRA in writing. Dispute forms included on websites. 2.CRA investigates, usually within 30 days. 3.CRA provides you with written results and copy of Credit Report. 4.CRA sends notices to others. 5.If not resolved, you can have a statement of dispute included in your file. Also, tell creditor that you dispute an item. *You have the right to put a statement of up to 100 words on your Credit Report* up to 100 words on your Credit Report*

12 C R E D I T M A N A G E M E N T11 Your Credit Score An objective estimate of how likely you are to repay on time according to the agreed on terms. The score is based on five areas of information:

13 C R E D I T M A N A G E M E N T12 What is a good credit score? FICO Score Category% of US Population Meaning 700 and upExcellent60%Qualify for very best interest rates and terms Good27%May not qualify for very best interest rates and terms Risky12%May have to pay up to 2 percentage points higher than those in Excellent category Very Risky1%Will probably have to pay maximum rate allowed by law.

14 C R E D I T M A N A G E M E N T13 Establishing a Credit History Maintain a checking or savings account Maintain a checking or savings account Pay bills on time Pay bills on time Savings (share) secured loan Savings (share) secured loan Cosigned loan Cosigned loan Local retailer or gas card Local retailer or gas card Major retail charge account Major retail charge account Major bank card Major bank card

15 C R E D I T M A N A G E M E N T14 The Cost of Credit Your Credit Worthiness Matters Your Credit Worthiness Matters – The better your credit history, the better rates you will qualify for Comparison Shop Comparison Shop – Credit is a product, so comparison shop

16 C R E D I T M A N A G E M E N T15 Where to Borrow Credit Unions Credit Unions Commercial Banks Commercial Banks Savings & Loan Associations Savings & Loan Associations Consumer Finance Companies Consumer Finance Companies Retail Merchants Retail Merchants BEWARE OF Predatory Lending

17 C R E D I T M A N A G E M E N T16 How Much You Borrow Interest Rate of 9% on a 5 yr. Loan Down Payment Amount Financed Monthly Payment Finance Charge Total Cost $0.00 $2,000 $5,000 $8,000 $5,000 $10,000 $ $ $207.60$2,456 $1,965 $1,228 $11,965 $11,228 $12,456 Bigger Down Payment = Less Total Cost

18 C R E D I T M A N A G E M E N T17 How Long to Repay Interest Rate of 9% Term of Loan Amount Financed Monthly Payment Finance Charge Total Cost 1 Year 3 Years 5 Years $10,000 $ $318 $874.50$494 $1,448 $2,456 $11,448 $12,456 $10,494 Shorter Repay Period = Less Total Cost

19 C R E D I T M A N A G E M E N T18 Minimum Monthly Payment Beware of the myth of the minimum payment $1,000 credit card balance, 18% APR Minimum Monthly Payment Time to Pay Off Debt Interest Paid 2%19 Years$1,931 5% 2 Years 382 $50 2 Years 176 $207.5 Years 803

20 C R E D I T M A N A G E M E N T19 Minimizing Interest Charges Simple interest Simple interest Add-on interest Add-on interest Example: $1,000 at 12% for 1 year Simple Interest paid = $66 Add-on interest paid = $120 Example: $1,000 at 12% for 1 year Simple Interest paid = $66 Add-on interest paid = $120 Read the Contract!

21 C R E D I T M A N A G E M E N T20 Choosing Credit Cards: Know the Terms Annual Percentage Rate Annual Percentage Rate Grace Period Grace Period Annual Fees Annual Fees Transaction Fees and other charges Transaction Fees and other charges Balance Computation Method for Finance Charges Balance Computation Method for Finance Charges – Average Daily Balance – Adjusted Balance – Previous Balance – Two-Cycle Balances

22 C R E D I T M A N A G E M E N T21 Other Costs and Features Other Costs and Features Other Costs and Features – How will you use it? – How high a credit limit? – Are there special delinquency rates? – What is the rate for Cash Advances? – Credit life, credit disability and credit unemployment insurance unnecessary and expensive

23 C R E D I T M A N A G E M E N T22 Military Cards: STARCARD Use at ALL military installations Use at ALL military installations Administered by AAFES Administered by AAFES – STAR or Finance charges accrue Finance charges accrue Can reach into your paycheck Can reach into your paycheck

24 C R E D I T M A N A G E M E N T23 Government Credit Cards and Navy Cash Purchase cards Purchase cards Travel cards Travel cards Authorized and approved charges only! Authorized and approved charges only! Navy Cash Card Navy Cash Card – On-board Debit Card System – Electronic Purse

25 C R E D I T M A N A G E M E N T24 Debt to Income Ratio Handout Debt: How Much is Too Much? Calculate your debt-to-income ratio

26 C R E D I T M A N A G E M E N T25 Warning Signs of Too Much Credit Not paying off each month Not paying off each month Making only minimum payments Making only minimum payments Gradually more income committed to debt repayments Gradually more income committed to debt repayments Falling behind on payments Falling behind on payments Using cash advances to meet monthly living expenses Using cash advances to meet monthly living expenses

27 C R E D I T M A N A G E M E N T26 Other Indicators Little or no money in savings Little or no money in savings Dependent on second job to make ends meet Dependent on second job to make ends meet Owing over 20% net income per month to creditors Owing over 20% net income per month to creditors At or near credit limits most of the time At or near credit limits most of the time

28 C R E D I T M A N A G E M E N T27 Critical Point Rotating bills (paying some this month, some next month) Rotating bills (paying some this month, some next month) Using credit to pay credit Using credit to pay credit Being denied additional credit Being denied additional credit Dishonesty with spouse about debts Dishonesty with spouse about debts Use of consolidation loans to reduce payments Use of consolidation loans to reduce payments

29 C R E D I T M A N A G E M E N T28 Recovering from Debt Take Charge! Construct a budget and spending plan, prioritize debts Take Charge! Construct a budget and spending plan, prioritize debts Construct a power payment plan Construct a power payment plan Talk to Your Creditors Talk to Your Creditors

30 C R E D I T M A N A G E M E N T29 Beware of: Credit clinics Credit clinics Debt consolidation loans Debt consolidation loans Bankruptcy Bankruptcy – Chapter 7 – Chapter 13 – New Bankruptcy Law Much Stricter! "Credit problems? No problem!" "We can erase your bad credit-100% guaranteed." "Create a new credit identity-legally." "We can remove bankruptcies, judgments, liens, and bad loans from your credit file forever! "Consolidate your bills into one monthly payment without borrowing" "STOP credit harassment, foreclosures, repossessions, tax levies and garnishments" "Keep Your Property" "Wipe out your debts! Consolidate your bills! How? By using the protection and assistance provided by federal law. For once, let the law work for you!"

31 C R E D I T M A N A G E M E N T30 Stop Thief! Avoiding Identity Theft Watch your purse or wallet at all times Watch your purse or wallet at all times Dont carry your Social Security card Dont carry your Social Security card Dont share personal information with random people you dont know Dont share personal information with random people you dont know Read statements, look for suspicious activity Read statements, look for suspicious activity Shred charge receipts, checks, bank statements, expired cards and any other documents with personal information Shred charge receipts, checks, bank statements, expired cards and any other documents with personal information

32 C R E D I T M A N A G E M E N T31 Talk to a Professional Non-profit Debt Management Counseling Your bank or credit union Your bank or credit union

33 C R E D I T M A N A G E M E N T32 Sources of Help Your Command Financial Specialist Your Command Financial Specialist Fleet and Family Support Center Fleet and Family Support Center Navy Legal Services Office Navy Legal Services Office Credit Union or Credit Counseling Agencies Credit Union or Credit Counseling Agencies Debt Management Programs Debt Management Programs

34 C R E D I T M A N A G E M E N T33 Summary Keep your budget up-to-date Keep your budget up-to-date Calculate your Debt-to-Income Ratio Calculate your Debt-to-Income Ratio Plan purchases Plan purchases Shop for credit Shop for credit Check credit report annually Check credit report annually Use all of your available resources Use all of your available resources Build wealth, not debt Build wealth, not debt

35 C R E D I T M A N A G E M E N T34 Print your Certificate Click on the following link to add your name to the certificate and print it: Credit Management


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