Presentation on theme: "C.A.R.E. Credit Abuse Resistance Education A program of: U.S. Bankruptcy Court, Western Missouri & Kansas Districts The Kansas City Bankruptcy Bar Association."— Presentation transcript:
C.A.R.E. Credit Abuse Resistance Education A program of: U.S. Bankruptcy Court, Western Missouri & Kansas Districts The Kansas City Bankruptcy Bar Association University of Missouri Extension Service
Why ? People under age 25 are fastest growing group of bankruptcy filers One out of five young adult households are in debt hardship (over 40% of income goes to debt payments each month) In last decade, youngest adults (18-24) saw credit card debt increase 104% Graduating college students average $20,402 of debt-- $3,262 on credit cards Individuals seeking credit counseling have average annual salary of $29,425; average debt excluding mortgage or rent of $23,184
Credit Education Badly Needed 68% teens report never discussing responsible credit card use with any family member 31% teens, 18-19, have credit card in own name 71% of young adult card holders revolve their balances compared to 55% of all cardholders
Presentation Overview Different card types Using cards wisely Choosing best card for you Your credit rating Consequences of credit abuse Avoiding credit problems
Make the Credit-Money Connection $ $ When you pay by credit card, you still have to pay for the purchase with “real” money. $ $ If you cannot afford to buy something with cash, you likely can’t afford it using credit. $ $ Using credit means paying for today’s purchases with tomorrow’s income.
Reasons for Having a Credit Card 1. 1. Emergencies 2. 2. Large purchases (necessities) 3. 3. Establish a credit history 4. 4. Facilitate other transactions 5. 5. Identification 6. 6. Safety
Choosing a Card Annual Fee Interest Rate --Introductory --Balances v. Cash Advances --Fixed v. Variable --Default Interest Grace Period Method of Computation Rewards
Costly to Maintain a Balance $ $ In 2001 average family carried a balance of $7000; now up to $9200 $ $ At 20% interest, pay $153 a month in interest alone $ $ That’s $73,440 from age 25 to 65 that could be used for other things $ $ If you saved/invested the $153 instead – at 5% return equals $233,481; at 7% it would be $401,600
Making the Minimum Payment Sometimes people think they are handling their debt by making minimum payment
Minimum Payment $ For many years it was 2% of the balance. On most cards that was just.5% going toward principal with the rest paying interest $ Now minimum payment will be 4% of the balance. Makes minimum payments higher (double) but balance will go down faster
Paying the Minimum on $2000 Amount Paid Minimum Payment of 2% (not below $15) New Minimum of 4% (not below $15) Years to Pay Off238.2 Total Interest Paid $4,069.93$1,073 Total Purchase Cost $6,069.93$3,073
Cash v. Credit Store AStore BStore C Cash Price$379$388$410 APR27%13%12% Number of Monthly Pmts. 12 Monthly Pmt. $36.25$35.00$36.50 Finance Charge $56.00$32.00$28.00 Amount Repaid $435$420$438
Comparing Loans Lender 1 Credit Union Lender 2 Dealership Lender 3 Bank Amount of Loan $4,200 Monthly Pmt. $192.84$110.60$135.05 Number of Pmts. 244836 Total Repaid $4,628.16$5,308.80$4,861.80 Finance Charge $428.16$1,108.80$661.80 APR9.5%12%9.75%
Your Credit Report Not everyone has a credit report Getting started can be a Catch 22 Found at three national credit reporting agencies Limitation of who can see your credit report Contains extensive information Negative info can result in credit denial or higher interest Negative info reported for 7 years; bankruptcy for 10 years
Consequences of Credit Abuse Make it impossible to complete degree Denial of employment Denial of credit Higher interest rates Higher insurance rates Denial of a lease Denial of student loans Emotional stress
Seven Steps to Avoid Credit Abuse Step # 1 Distinguish between needs and wants
You Fail When: You sacrifice what you want most for what you want now!
Avoid Credit Abuse Step # 2 Have only one credit card
To Further Control Your Credit Use: Opt for a low credit limit on your one card
Avoid Credit Abuse Step # 3 Pay off your balance each month
A Good Way to Do This: Don’t charge anything unless there is already money in the bank to pay for it.
Avoid Credit Abuse Step # 4 Never make only the minimum payment
Avoid Credit Abuse Step # 5 If you must carry a balance monitor it each month
If you find you are getting deeper in debt: Stop digging the hole!
Avoid Credit Abuse Step # 6 Make a monthly budget and follow it
Don’t Like the Word “Budget”? Think of it as your “Personal Financial Survival Guide”
Avoid Credit Abuse Step # 7 Use cash or a debit card whenever possible
Two Personal Rules $ $ Don’t use a credit card for any purchase less than $10 $ $ If you can eat or drink it, don’t charge it