The Facts on Credit Those who are wise never pay interest… they earn it!

What is Credit?  Another word for credit is loan…  3 Main types of credit:  Sales  Credit you receive when you make a purchase and promise to pay later.  Cash  Credit you receive when you borrow cash and promise to pay it back later.  Service  Credit given for a service one receives (utilities, dentist, hospital, etc.) that will be payed for later.

How much credit can I use?  The total amount of credit should not exceed 20% of one years NET income…  How much can a person borrow that makes $36,000 net? that makes $36,000 net?  Answer: $7200  (This includes your car loan…)  $7200/12 months= $600 a month!!! (not including interest)

The Cost of Credit Principal Interest (rate) YearsPaymentTotalInterest Total Cost $1, %2$47.07$129.79$1, $1, %2$51.39$233.21$ $5, %8$70.68$1,785.71$6, $5, %30$87.67$26,561.28$31, $150, %30$997.00$209,266.00$359,266 $150, %15$1,348.24$92,683.00$242, $350, %30$2,328.56$488,279.00$838,279.00

Advantages of Credit  Stimulates the economy  Helps us take care of emergencies  Convenient – ordering over the phone  Establishes a credit rating  Advance notice of sales and cask back on purchases  Easier to exchange and return items  Detailed monthly bill

Disadvantages of Credit  It always costs money  Risky to spend future income  Encourages careless buying (Needs vs. wants)  Facilitates over-buying which increases sacrifice that must be made eventually  Often increases family conflict  May lead to Bankruptcy  Increases the cost of doing business

Payday Loans *The borrower requests a loan for a short period of time, usually one to four weeks. *“Payday loan fee” - Up to 360% interest. *If the borrower continues to have a financial problems and cannot pay the loan as promised, the interest keeps building on the debt.

Other Options….  Try a small loan from a credit union  Ask for pay in advance from your employer  Consider a loan from family or friends, (be sure to have the terms of the loan in writing)  Use a credit card cash advance  Request additional time to pay the bill from your creditors.  Pawn Brokers  Or… just don’t borrow money!!!

Credit Rating/ FICO Score  A credit rating assesses the credit worthiness of an individual. Credit ratings are calculated from financial history and current assets and liabilities. credit worthinesscredit worthiness  A credit rating tells a lender or investor the probability of the person being able to pay back a loan. loan  In recent years, credit ratings have also been used to adjust insurance premiums, determine employment eligibility, and establish the amount of a utility or leasing deposit.  A poor credit rating indicates a high risk of defaulting on a loan, and thus leads to high interest rates, or the refusal of a loan by the creditor. defaultinginterest ratesdefaultinginterest rates

Establishing Credit  Have checking and savings accounts and manage them responsibly. (These are not reported to the credit agencies, but help individuals develop a pattern of budgeting.)  Use layaway plans at stores  Save for large down payments on cars and other purchases.  Ask someone to be a cosigner for the loan.  Always make payments for bills ON TIME!!! (cell phone, utilities, credit cards, house payment etc.)

If you are REJECTED…  Obtain a copy of your credit report to determine what the problem is.  If something is incorrect, notify the credit bureau in writing.  Fixing credit problems may take up to six months.

Let’s talk interest rates… Bad Credit vs. Good Credit  Bad Credit  $3000 on credit card  18% interest rate  If minimum payment of 2 ½% is only made…  It takes 22 years and $4100 dollars in interest to pay of the debt.  Total: $7100 to borrow $3000  Good Credit  $3000 on credit card  4% interest rate  If minimum payment of 2 ½% is only made…  It takes 11 years and $400 in interest to pay off the debt.  Total: $3400 to borrow $3000

Scary Statistics  The average American household has $9200 in credit card debt.  In 2005, 21,476 people declared bankruptcy in Utah.  At the end of 2005, Utah was ranked 3rd in the U.S.  In Utah, bankruptcies are filed at the rate of one in every 37 homes! The national average is one in every 73 homes!

Moral of the Story…  Don’t spend more than you earn!!!  Use credit wisely!!!  Don’t get into debt!!!

Savings Pay yourself first

Savings  Setting aside a portion of paycheck for savings before using  rules  70% of paycheck for budgeting and spending  20 % of paycheck for savings  10% of paycheck for investing

Why people don’t save  We always want MORE  We often don’t set goals  Credit is easily available  Feel secure in job  Savings accounts pay little or no interest  Average Americans save less than 5% of their paycheck

Ways to Save Money  Savings Accounts  Get goals and budget to achieve goals  Spare Change  Etc.

3 Factors that Influence ability to Save  Commitment  Discipline  Delayed Gratification

Types of Savings Accounts  Passbook  Depositor receives booklet to record deposits, withdrawal & interest  Low interest rate  Funds are easily accessible  Statement Account  Same as passbook without the booklet  Accessible through ATM  Low interest rate  Funds are easily accessible

Types of Account con’t  Interest-Earning Checking  Combine benefits of checking & saving  Depositor earns interest on any unused money in the account  Money-Market  Like a interest-earning checking w/limited checks (usually 3)  Interest rate varies with size of balance and current interest rates  Access money through ATM

Money Market Con’t  Benefits  Higher interest rate  Immediate access to money Trade-Off Limited number of withdrawals

Types of Account con’t  Certificates of Deposit  Money held in the account for a certain # of years  Longer the term, larger the deposit = higher interest rate Benefits  Higher Interest Rate  No fees  Trade-offs  Penalty if withdrawn early  Restricted access to money

Protection for Savings  Different agencies protect different types of saving  3 Main savings agencies  FDIC (Federal Depository Insurance Corporation)  Insures bank accounts up to $250,000 per account  SAIF (Savings Association Insurance Fund)  Insures savings and loan institutions up to $250,000 per account  NCUA (National Credit Union Association)  Insures credit union accounts up to $250,000 per account