© 2004 ACA International all rights reserved Sponsored by Personal Finance With materials and information provided by: The American Bankers Association, the American Center for Credit Education, CBM Credit Education Foundation, Efunds, Experian, Federal Trade Commission, Minnesota Bankers Association, Nellie Mae, and the U.S. Department of Labor.

© 2004 ACA International all rights reserved The Basics: What is credit, anyway? Establishing credit Credit cards Budgeting Saving Auto loans

© 2004 ACA International all rights reserved Credit – the amount of money available to you through lenders Debt – the amount of credit you’re using at any given time Creditor – any person / business that extends credit Important definitions:

© 2004 ACA International all rights reserved Based on trust Checks & balances –Federal Trade Commission –Federal Reserve Board –local Better Business Bureau –local Chamber of Commerce –trade associations –consumer advocacy groups –credit reporting agencies Our credit system

© 2004 ACA International all rights reserved Credit Reporting Agencies –Equifax –TransUnion –Experian Credit report –Reputation –Past history is an indicator of future performance –7 years of info Your Credit

© 2004 ACA International all rights reserved 3 national credit reporting agencies Equifax (800) TransUnion (800) Experian (888) Check your report: –Once a year –Before major borrowing decisions –Any time you are denied credit –If you suspect fraud Obtaining your credit report

© 2004 ACA International all rights reserved Secured vs. Unsecured –collateral –risk Installment vs. Revolving –Installment: has set period of time auto loan mortgage –Revolving: open line of credit credit card Types of Debt

© 2004 ACA International all rights reserved Establishing credit 3 possible situations –Good credit history –Bad credit history –Insufficient credit history Getting started –Credit cards –Co-signed loans –Start small –Start with familiar institution

© 2004 ACA International all rights reserved Good or bad? Unsecured loans Higher risk = higher rates & fees Credit cards © 2004 ACA International all rights reserved

Choosing your first card APR –Lower is better –Read the fine print! Fees Perks Balance Calculation Method –Average Daily Balance –Two-Cycle Avg. Daily Balance (avoid!) Evaluating –bankrate.com –cardweb.com

© 2004 ACA International all rights reserved “Unlike student loans, which are designed for students, credit cards are designed for people with income.” (Nellie Mae)

© 2004 ACA International all rights reserved Guidelines for using credit cards: Intended for short-term borrowing –Not for carrying a balance long-term –Have a repayment plan in mind beforehand Always pay more than the minimum! –Pay off every month when possible –Pay at least 2x the minimum Always pay on time! –Avoid late fees –Pay by phone or online for convenience

© 2004 ACA International all rights reserved Bankrate.com Calculator Balance:$2,748 APR:18% min. payment:2% How long to pay off…? the minimum payment trap…

© 2004 ACA International all rights reserved the minimum payment trap… At minimum payment: 434 months (36 yrs, 2 months) $7, in interest At $80/month (min. + $25/month at start) 49 months (4 yrs, 1 month) $1, in interest

© 2004 ACA International all rights reserved vs. Durable goods Mp3 player Snowboard New tires for car Consumable goods Concert tickets Gasoline Groceries Dining out

© 2004 ACA International all rights reserved Budgeting A budget is: –Not about restriction –About getting what YOU want! –The best tool you have for financial success –Continuous –Flexible –Individual –About the future

© 2004 ACA International all rights reserved Prioritize Needs –Should always come before wants –Reflected in your budgeting & bill paying habits –Examples: savings, housing, reliable transportation, insurance coverage, groceries, clothing, utilities, existing financial obligations. Wants –cable/satellite TV –Toys: boats, snow mobiles, expensive jewelry, cell phones –Vacations –Dining out

© 2004 ACA International all rights reserved Live Within your Means Paying for living expenses on credit –denial Savings Lifestyle changes are difficult –Justification –Entitlement See the “big picture” –Set goals

© 2004 ACA International all rights reserved Debt: How much is too much? How much of your monthly budget is going to debt payments? Add up payment amounts for all loans, excluding mortgages (ex: auto loans, student loans, furniture loans, credit cards, personal loans, etc.) Divide by monthly gross income 20% or higher = potential problem Ex: $275 car payment $ 55 Visa card $ 30 Discover card $ 70 student loan + ________________ $ 430 $430 ÷ $2,000 = or 21.5% avoid taking on more debt!

© 2004 ACA International all rights reserved Warning Signs © 2004 ACA International all rights reserved no budget plan no savings denied for a loan debt increasing month after month total monthly debt payments ≥ 20% gross income making only minimum payments hiding purchases from others cash advances/payday loans late fees, over limit fees creditors/collectors calling

© 2004 ACA International all rights reserved Saving “Pay Yourself First” 10% of gross income Long term –Over 5 yrs –Retirement –Children’s education Short term –1 to 5 yrs –Vacation fund –Down payment for a house

© 2004 ACA International all rights reserved Auto Loans Borrow conservatively It’s just a car –Not a status symbol –Practical –Avoid emotion

© 2004 ACA International all rights reserved Shop for the loan carefully –Find the financing before you find the car –Know your credit score –The shorter the term, the better Depreciation “Upside down” Auto Loans

© 2004 ACA International all rights reserved Auto Loans © 2004 ACA International all rights reserved Depreciation:

© 2004 ACA International all rights reserved Buying a car New vs. used Negotiate! Consider all the costs before you buy –Insurance –Reliability/maintenance –Gas mileage

© 2004 ACA International all rights reserved Conclusion Questions? Thank you!