Personal Finance Credit

What role do you want it to play in your life? Credit What is credit? How does it affect you? What role do you want it to play in your life? Ask the audience these questions about credit, and assess how they feel about it. Address that there are different opinions of credit and we will go over the pros and cons of having/using credit next.

Student Loans? Car Loans? Credit Cards? Mortgages? Pros and Cons Universal con for credit is that you will have to pay back original amount with additional interest. Student Loans give a lot of people the chance to go to school who may not be able to afford it originally. They have a long length of repayment. Car Loans helps you buy a car. A big con to this is that cars tend to depreciate very quickly. Credit Cards are useful for building credit early. It can be difficult to monitor your spending or control yourself since they are so easy to use. Mortgages help you buy a home, and give you homeowner benefits.

What would you do? Sara wants to buy a new car. She usually has $300 left at the end of each month. Audience interaction. Next slide talks about two options she could do when taking out loans.

Get a car loan of $15000 at 3% for 5 years. Monthly payment: $269.74 $16171.82 Save an additional $100/month until she can put down $3000. Get $11,000 loan at 3% for 5 years. Monthly Payment: $197.66 Two options she is considering. The number on the right is the total amount she will have to spend depending on each plan. If she is willing to wait and save up money to get a smaller loan, she can save about $2,000. $14859.32

Looking at Your Credit Report 1. Personal Information 2. Summary of Accounts 3. Account History 4. Public Information 5. Inquiries 6. Creditor Contacts Transition to Credit report. Differentiate between a credit report, and a credit score. These are the different things you will find on a credit report. Your name and personal info, the different accounts you have open, your payment history and late payments, public information like if you have ever declared bankruptcy, inquiries like if a company or firm has recently looked into your credit report, and your creditor contacts. Ask if anyone has ever looked at their own credit report.

Example of a credit report. It has information on you for about 7 years. You can see in the red box in the month of September, this person had a 30 day past due balance from the year 2006. You can see up at the top right in “Status Details” that by Jun 2013 the account will become positive and the past due payment from Sept. 2006 will no longer appear. At the bottom, there are payment histories.

Fixing Errors Contact Credit Bureau Contact the source of the incorrect information Provide proof of your claims Bureau must investigate within 30 days What to do if you see errors in your credit report, and who you should contact. If you report the error and have proof, the Bureau is required to investigate your account within 30 days.

Credit Report Sources Annualcreditreport.com Creditkarma.com Do not pay to receive a credit report 1 Free Report/Bureau each year Where to get your credit report. Emphasize that they should not have to pay to receive their credit report. There are 3 Bureaus and each one is required to give you one free credit report per year. It is a good idea to get one credit report from a different bureau every four months to avoid paying for one.

Moving on to credit score Moving on to credit score. Explain that fico score is a type of credit score. These are the things that make your credit score what it is.

Debt to Credit Ratio: Vicki Macy’s: $0/$500 0% Wells Fargo: $998/$1000 99.8% Mastercard: $1300/$1500 86.7% _________________________ $2298/$3000 This is an explanation of the debt to credit ratio. Vicki has three credit cards. The credit cards have a limit of $500, $1,000, and $1,500 respectively. Together, they have a combined credit limit of $3,000. If we look above and see how much of each card Vicki uses, we can see she used a combined total of $2,298. Now we take what she spend divided by what she is allowed to spend. $2298/$3000 which gets us 76.6%. This is her Debt to Credit Ratio. For those looking to build their credit, it is a good idea to have no more than a 30% debt to credit ratio. 76.6%

Pay credit card bill on time for 7 months Max out credit cards every month Turn 30 You check your credit score Quiz the audience. Ask them how each event would affect their credit score. Each event will either affect it positively, negatively, or not at all. Address the myth that checking your credit score does NOT lower your credit score. There are soft and hard credit inquiries. If you check your own credit score, it is known as a soft inquiry and does not affect your score. If someone who will potentially loan you money checks your score, that is considered a hard inquiry and will slightly affect your credit score. Get a mortgage and a credit card and a car loan in the same month

Why does my credit score matter? http://www.myfico.com/myfico/creditcentral/loanrates.aspx Clicking the link takes you to a loan repayment calculator that takes into account your credit score. Simply fill in the blanks, and click calculate to see how much your monthly payments will be. Keep the same loan amount and everything, and change the credit score at the bottom and click calculate to show the audience how having different credit scores affects your APR and how that drastically changes your monthly, and overall payments.

49 years 10 Years Dennis 26.99% APR Total finance charges: $832 Liz Another example of why credit score matters and how APR can affect your total payment. Dennis and Liz have different APR’s, but the same $2,000 credit card balance. Assuming they both only pay the minimum payment, it will take Liz 10 years to pay it off, and she will end up paying $832 in interest, and it will take Dennis 49 years to pay it off, and he will have paid $13,522 in interest. Liz 9.99% APR

Debt Repayment Student Loan Exit Counseling Debt Snowball Debt Avalanche Consolidation Refinancing Now we talk about debt repayment. Quickly go over student loan exit counseling, and why it is more advantageous to do it in person rather than online. Briefly talk about how with debt snowball repayment you pay off the lowest amount of debt first, and with debt avalanche you payoff debt with the highest interest first. We talk more about snowball and avalanche in the next slide so don’t go too in depth yet. Consolidation is when you combine all your debt together. Explain that there are pros and cons to this depending on the situation and they may need to look more into this because consolidation is not always a good or bad thing to do. It makes it convenient to make only one loan repayment, and you will only have one loan servicer, but look into what it will do to your personal interest rate and determine if it really is worth it. Refinancing is the same with consolidation where it isn’t always better or worse for every situation. You should look to refinance when it benefits you. You might consider doing this when the market interest rate is lower than what you are currently paying.

Snowball Avalanche 1. Sister $200 0% 2. Credit Cards $6,000 18.0% 3. Car Loan $10,000 5.12% 4. Student Loans $12,000 3.76% Avalanche A more detailed look at Snowball and Avalanche debt repayment. With the snowball debt repayment method, you pay off the debts with the lowest total amount first. It is emotionally relieving to quickly pay off debts and cross them off your list. With the avalanche debt repayment method, you want to payoff the debt with the highest interest percentage. This way you pay off the highest debt percentages as quick as possible and pay as little in interest as possible. Inform the audience that this is just a structure for debt repayment and that everyone can customize it. Maybe you want to use the avalanche repayment method, but paying back your sister is very important and you want to do that first. 1. Credit Cards $6,000 18.0% 2. Car Loan $10,000 5.12% 3. Student Loans $12,000 3.76% 4. Sister $200 0%

Questions?