1. 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

2. 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

3. 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

4. Presentation Overview   Different card types   Using cards wisely   Choosing best card for you   Your credit rating   Consequences of credit abuse   Avoiding credit problems

5. 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.

6. 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

7. Types of Cards   Debit   Charge cards   Credit cards

8. Choosing a Card   Annual Fee   Interest Rate --Introductory --Balances v. Cash Advances --Fixed v. Variable --Default Interest   Grace Period   Method of Computation   Rewards

9. 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

10. Making the Minimum Payment Sometimes people think they are handling their debt by making minimum payment

11. 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

12. 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

13. 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

14. 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%

15. 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

16. 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

17. Seven Steps to Avoid Credit Abuse Step # 1 Distinguish between needs and wants

18. You Fail When: You sacrifice what you want most for what you want now!

19. Avoid Credit Abuse Step # 2 Have only one credit card

20. To Further Control Your Credit Use: Opt for a low credit limit on your one card

21. Avoid Credit Abuse Step # 3 Pay off your balance each month

22. A Good Way to Do This: Don’t charge anything unless there is already money in the bank to pay for it.

23. Avoid Credit Abuse Step # 4 Never make only the minimum payment

24. Avoid Credit Abuse Step # 5 If you must carry a balance monitor it each month

25. If you find you are getting deeper in debt: Stop digging the hole!

26. Avoid Credit Abuse Step # 6 Make a monthly budget and follow it

27. Don’t Like the Word “Budget”? Think of it as your “Personal Financial Survival Guide”

28. Avoid Credit Abuse Step # 7 Use cash or a debit card whenever possible

29. 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