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How to Use Them, But Not Abuse Them

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Presentation on theme: "How to Use Them, But Not Abuse Them"— Presentation transcript:

1 How to Use Them, But Not Abuse Them
Credit Card Debt How to Use Them, But Not Abuse Them

2 A Look at Credit Card Debt
There are currently 1.2 billion cardholders of all ages with a total of $650 billion in debt. Americans charged $1.3 trillion to credit cards and $400 billion to debit cards

3 Students & Credit Cards
Some recent statistics 78% of undergraduate students (18-25) have credit cards (up from 67% in 2002) 32% of students have four credit cards or more One in four students owes more than $3,000 Nearly 10% owe $7,000 or more In 2002 more than 100,000 people under the age of 25 filled for bankruptcy 2004 Nellie Mae Study

4 Plastic Money operate on a credit limit and revolving basis
Credit Cards operate on a credit limit and revolving basis if not paid-in-full within grace period, interest is charged on the remaining balance

5 What is the average rate for a credit card?

6 What is the highest interest rate currently charged on a credit card?
41% That’s almost half!!!

7 Fees, fees, and more fees Annual fee for just having the credit card
Over the limit fees, charged whenever you exceed your credit limit Late payment fees Transaction fees Other miscellaneous fees read the fine print!!!

8 Credit Cards: majority of students use credit cards responsibly
Some positives majority of students use credit cards responsibly provide convenience and security allow students to establish credit histories

9 Analysis of consumer spending shows customers spend 20% to 30% more using credit cards than they would with cash!

10 Some disadvantages college students are more likely to run up debts they can not pay than other types of credit card users college students (with limited or no credit history and income) are charged higher interest rates

11 And still more bad news…
many students do not understand the consequences of incurring excessive debt and making payments late impaired credit rating more difficult and costly to obtain credit later many students pay only the minimum amount due each month. Career choices can be limited Some are forced to file bankruptcy (1.3 million cardholders filed for bankruptcy last year) A few students, so overwhelmed with debt, have committed suicide

12 Characteristics of high-risk use
Average credit card balances over $1,000 Owning four or more credit cards Carrying a balance each month

13 30 years and total cost would be $7,733.49
Credit Card Debt How long will it take to pay off $2,500 at an interest rate of 17% if you pay only the minimum balance due? 30 years and total cost would be $7,733.49

14 What is the average # of credit cards a person holds?

15 Credit Card Don’ts Don’t use them for cash advances
Don’t charge more than you can pay off in a month Don’t let banks increase your credit limit Source: USA Funds Life Skills -Module 1

16 Credit Card Do’s Limit the number of cards you have
Use a debit card vs. a credit card Use a card that has no annual fee and lower interest rates Know all of your card’s hidden fees Always pay more than the minimum amount each month Pay on time, all the time.

17 Credit Card ABCD’s A credit card is helpful for emergencies, but emergencies rarely happen at the mall! Buying on SALE, is still SPENDING, not SAVING! Credit card debt is not an investment, but it does reduce your ability to invest! Debt from credit cards can make it more difficult to achieve your financial goals.

18 What’s a credit score? A credit score is: 300-850
A numerical forecast of the likelihood you’ll successfully repay a future loan Based on credit account information in your credit report An automated credit evaluation tool Comparable to your “credit GPA” Credit score is NOT based on the identifying information in a consumer’s credit report, such as name, address, SSN, birth date, and employment history. It also is not affected by race or gender since these are not permissible factors in the credit granting process. “Soft Inquiries” also do not affect credit scores (see SLIDE #11 for more on soft inquiries).

19 What factors affect your score?

20 To Maximize Your Score Don’t procrastinate – pay all your bills on time Avoid owing more than 30% of your available revolving credit “Less is more” – keep your revolving debt as low as possible “Older is better” – older accounts score more favorably Minimize the opening of new revolving accounts Self explanatory

21 What is the true cost of paying the “minimum”
Suppose: Credit card balance = $8,000 Interest rate (APR) = 18% Minimum payment = 2% of balance How long would it take to pay it off? 647 months / 54 years Total interest paid = $22,931 This assumes you STOP using the credit cards! It will take even longer if you don’t stop! Self explanatory

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