scary statistics in 2003, one billion credit cards were in circulation. the average household...
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Scary Statistics
In 2003, one billion credit cards were in circulation.The average household carried a balance of $7500 on their cards
from month to month, and paid 18.3% in interest ($950 a year).In 2001, Americans charged up more than $400 billion on their
credit cards.They were charged $50 billion in interest.
The average household has seven credit cards and carries a balance of $14,000
By simply having a credit card, a person spends 34% more.Only 2 out of 3 people with credit cards keep them at their
limit.If a store offers credit cards, there is a 4-7% mark up on
items to cover the fee to the credit agency.
More Scary FactsUtah ranks as the fourth-highest state in
the amount of debt per capita and leads the nation in personal bankruptcy. The average age of the filer in Utah is 27.In 2005, 21,476 people declared bankruptcy
in Utah.Main cause = Credit Card Debt
In Utah, bankruptcies are filed at the rate of one in every 37 homes!
1.1 million Americans filed personal bankruptcy last year137 Americans file every hour of every day
The national average is one in every 73 homes file!
Firms go out of their way to offer me credit, for which I say, “I am Deeply
Indebted”.
Credit, Debt, and Savings
Circle Juggle
DebtMoney that you have spent above and beyond
the money that you have available to you. Future money that you have not received yet but
is already spent.Credit and loans fall into this category
Getting Out of DebtPay off balances by the end of each monthDevelop a repayment plan and pay debt off
quickly!Stop getting into more debtSerious analysis of needs vs. wantHave the money before you buy it.
SNL SKIT
The Facts on Credit
Those who are wise never pay interest… they earn it!
Borrow $200.00
Defining Credit Terms Annual percentage rate (APR): The cost of a loan over a
full year expressed as a percentage.
Bankruptcy: Legally getting out of having to repay debts; admitting and accepting financial failure. Destroys credit rating for seven -11 years;
*Capacity: Ability to fulfill obligations evidenced by diligence at work and prospects of continuing employment or income. Can you repay the Loan?
*Character: The quality of one's reputation or name; financial or economic trustworthiness. Will you repay the loan?
*Collateral: Security on a loan (house, jewelry, car, etc.) What you have in case you do not pay the loan
(*3 C’s Of Credit to determine if you are fit to have a credit card)
If school performance was used to determine credit
worthiness, how would you do?
M &M’s
Questions1. Number of times you have missed class this quarter?2. Number of times you have been tardy this quarter?3. How many times you have turned in late
assignments this quarter?
4. How many times you have turned in incomplete assignments this quarter?
5. How many times you have not turned in an assignment at all this quarter?
6. How many times you have been asked by the teacher to change or improve your behavior in class this quarter?
7. How many times you have forgotten to bring the required materials (textbook, pencil, etc.) to class this quarter?
Total the numbers from your answers!
RESULTS SAY:
4 or Less = Credit Approved! 5 - 7 = Need Cosigner8 or More = Credit Denied!
Establishing Credit #3 SG
Have checking and savings accounts and manage them responsibly. Make regular deposits into them.
Use layaway plans at storesSave 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.Pay the most amount you can – more than the
minimumThese are reported to the credit agencies
Responsibly buying on credit helps to establish your credit.
Why is Good Credit Important?Bad Credit vs. Good Credit
Bad Credit$3000 on credit card18% interest rateIf 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 card4% interest rateIf 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
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.
Cosigner: Second signer who guarantees to pay for the loan if the first party ( person who obtains the loan) defaults.
Credit: A loan that allows immediate use of products or services in exchange for a promise to pay in the future.
Credit Bureau: A private corporation that is a clearing house for consumer credit information. Collect information on credit practices of individuals.
Credit rating (FICO): Creditor's evaluation of a debtor's willingness and ability to pay debts based on past performance. Ie: how promptly a person pays his/her debts. Ranges from 350 to 850.Paying bills on time builds a good credit rating
Default Failure to repay a loan
Video Credit BIG
Finance Charge The total dollar amount that it costs a consumer to use credit.
TV Paid with CashTV Paid with Credit Card
Regularly $400.00
On Sale $360.00No InterestTotal Cost
$360
21% A.P.R.18 mo. pmts$26.00 per mo.$68.00 interest Months financed X monthly
payment.
Total Cost $468
The Cost of Credit -Magic of Interest “The magic of compounding interest is truly the 8th wonder
of the world” Albert Einstein
Principal(original amount)
Interest (rate)
Yearsto pay
Payment amount
TotalInterest over time Total Cost
$1,000.00 12% 2 $47.07 $129.79 $1,129.79
$1,000.00 21% 2 $51.39 $233.21 $1.233.21
$5,000.00 12% 8 $70.68 $1,785.71 $6,785.71
$5,000.00 21% 30 $87.67 $26,561.28 $31,561.28
$150,000.00 7% 30 $997.00 $209,266.00 $359,266
$150,000.00 7% 15 $1,348.24 $92,683.00 $242,683.00
$350,000.00 7% 30 $2,328.56 $488,279.00 $838,279.00
Compounding Interest in ActionYou have just bought an iPod, and you paid for it with your shiny new credit card with an 15% interest rate. At a list price of $150, plus sales tax of 10.50, that’s $160.50 , let’s figure out how much your iPod really costs you in the end. Compounding Interest Chart
Month Amount Interest PaidTotal Amount Owed
1 160.50 15% (160.5x.015)+160.5=162.91
2 162.91 15%(162.91x.015)+162.91=165.35
3 165.35 15%(165.35x.015)+165.35=167.83
4 167.83 15%(167.83x.015)+167.83=170.35
To figure out compound interest: 1. Multiply your principal and any
accrued interest (the number in the amount column) by the percentage of interest. In month one it’s .015:
160.50 x.015 = 2.41 160.50+2.41=162.91
2. Add this amount in the total column.
3. Continue. Be certain to start each calculation with the new total.
What was the amount of interest charged the first month? 2.41 Second? 2.44 Third? 2.48 Fourth? 2.52
What would the total cost of the iPod be if you allowed interest to accrue for four months without making payments? 170.35
Item Purchase
Cash Price
Down
Payment
Interest
Rate
Months
Financed
Monthly
Payment
Total Price Using Credit
Cost of Credit
Appliances
$1,200
$200 10% 12 $88 $1256 $56
Appliances
$1,200
$200 18% 12 $92
Furniture
$3,500
$500 10% 24 $138
Furniture
$3,500
$500 18% 24 $150
months financed x monthly payment = +down payment= (1st box) -cash price = credit cost
FIGURE COST OF CREDIT (What do you notice?)
Garnishment Your employer pays your creditor before you receive your paycheck.
Interest Price paid for the use of rented or borrowed money.
Principal The original amount of a loan on which interest is based.
Groceries on CreditPrinciple = $125.00Interest = $14.00Final Cost = $139.00
Clothing on CreditPrinciple = $350.00Interest = $137.00Final Cost = $487.00
When you make the last payment, will the stereo, clothing, food you purchased be long gone?
3 Main types of credit:
Sales CreditCredit you receive when you make a
purchase and promise to pay later.Cash Credit
Credit you receive when you borrow cash and promise to pay it back later.
Service CreditCredit given for immediate service one
receives (utilities, dentist, hospital, etc.) that will be payed for later.
Which Card For Me?1. Different cards have different age
requirements.A. I am under seventeen years old.B. I am seventeen years old and have a co-
signer.C. I am eighteen years old or older.
2. I just found a jacket that I really want, but it is expensive. So I…
A. Borrow the money from my parents and promise
to pay them back.B. Save part of the money and borrow the
rest.C. Save all of the money and then buy it.
3. Going to school takes up a lot of my time. So,
A. I do not have a job.B. I will baby-sit or do other work when
someone calls me.C. I have an after-school and/or weekend job
with aregular income.
4. When I owe my parents money,
A. I still buy other stuff.
B. I try to pay them back quickly but might buy one
or two small things.
C. I save all my money until I can pay them back.
5. I have been to a bank before
A. But I have never had my own banking account.
B. And opened my own savings account, which I still use.
C. And opened my own checking account, which I
still use.
6. In the past when I have spent money,
A. I have never tracked my spending (written down
how much I spent and where I spent it).
B. I have tracked my spending when I was saving for
something in particular.
C. I have always tracked my spending.
So, which card is best for you? Add up how many times you selected an A answer, B answer, and C answer
You probably like the idea of a credit card but have not had the opportunity to experience managing your own money. Some large credit card companies offer a great pre-paid card that might be perfect for you! It works like this: money is deposited into your account and then you can use your card anywhere your credit card company is accepted. Once you have spent all the money in your account, just add more money to keep shopping. The great thing about this card (aka “smart card”) is that you do not have to be eighteen to get one! If you are sixteen or older you can open your own account. If you are thirteen, fourteen, or fifteen you can still get an account in your name—as long as your parents sign with you. This card will give you the opportunity to start tracking your own money and let you build a history with a major credit card company.
Mostly A’s = Pre-funded Card
Mostly B’s = Sales Credit (Gasoline or Store Credit Card)
It sounds like you have had some experience managing your own money. Good for you! As long as you are 18 years old or have a co-signer, a great first card for you might be a gasoline or store credit card. These cards are a good way to establish credit. They are usually easier to obtain than a bank credit card. Purchases are limited to the merchant that issues the card. It is a good idea to pay off the charges each month so you don’t get yourself in over your head. Pay the bill on time each month.
Mostly C's = Bank Credit CardIt appears that you know how to manage your
spending well because you realize the responsibility of earning, saving, and owing money. As long as you are eighteen years old, a bank credit card might be right for you. Bank credit cards are exciting but come with a great deal of responsibility. With a bank credit card you can make purchases without paying for them immediately. Once you get your spending statement, you can make the minimum payment, the entire payment, or anywhere in between. It is important to know that if you do not pay your entire balance, you will pay interest on the money you still owe.
Cash Credit = 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.
How much credit can I use?
The total amount of credit should not exceed 20% of one years NET income…If your credit card has a 20% interest, you make a
$1,000 purchase, and you choose to only pay the minimum monthly payments the entire time, it will take more than 20 years to pay that card off.
How much can a person borrow for a car if they makes $36,000 p/year net?
Answer: $7200 (net x .20)$7200/12 months= $600 a month!!!
(not including interest)
Advantages of CreditStimulates the economyHelps us take care of emergenciesAllows us to take advantage of great dealsConvenient – ordering over the phoneEstablishes a credit ratingAdvance notice of sales and cash back on
purchasesEasier to exchange and return itemsDetailed monthly bill
Disadvantages of CreditIt always costs moneyRisky to spend future incomeEncourages careless buying (Needs vs.
wants)Facilitates over-buying which increases
sacrifice that must be made eventuallyOften increases family conflictMay lead to BankruptcyIncreases the cost of doing business
Other Options….
Try a small loan from a credit unionAsk for pay in advance from your employerConsider a loan from family or friends, (be
sure to have the terms of the loan in writing)
Use a credit card cash advanceRequest additional time to pay the bill from
your creditors.Pawn BrokersJust don’t borrow money!!!Or you could…
Experts recommend that you pay yourself first by having a savings plan.
Savings Video
SAVE FOR IT
The best time to start saving money was 20years ago, the 2nd best time is today.
Visualize yourself achieving your financial goals to help you save money for what you want to purchase.
Make savings a priority in your budget and never cut it when balancing a budget.
Keeping $500 - $1000 dollars in savings at all times will cover most unexpected expenses.
Trim variable expenses like shopping, food, entertainment, and transportation..
Catch the Money
Saving Strategies Which money Savings plan will work for you?
Entertainment ClothingGo to matinees instead of
evening showsRent movies and make
snacks at home with friendsShare magazines, books, and
music subscriptions with friends
Check books out of the library instead of buying them
Buy used CD’s and movies instead of new ones
Use coupons and ID discountsWhat else…..
Wait to buy clothes on sale at your favorite stores
Buy clothing that can be washed rather than dry-cleaned
Buy at discount storesShop garage sales
and thrift storesWhat else……
Food and BeverageTransportation
Pack your lunch or snacks instead of buying food out everyday
Share a meal with a friend instead of buying separate meals
Drink water instead of soda at a restaurant
Use couponsJoin loyalty customer
clubsWhat else….
Carpool, take a bus, walk ride a bike
Wash your car at home instead of paying for a car wash
Save gas by organizing errands more effectively
Get good grades and have good driving record to reduce the cost of car insurance
What else….
Phones BankingUse e-mail or instant
messages instead of the phone
Cell phone plans that have free minutes and no roaming charges
Check bills for errorsChoose companies that friends
and family have to call for freeUse the phone during off-peak
hoursKeep a listing of numbers
instead of using 411What else….
Deposit money gifts into a saving account
Have savings automatically drafted from your paycheck
Avoid using ATM’s with surcharges
Have paycheck automatically deposited
Ask bank for free checkingDon’t bounce checksWhat else…
Moral of the Story…
Don’t spend more than you earn!!!
Use credit wisely!!!
Don’t get into debt!!!
SAVE YOUR MONEY
SMITH FAMILY BUDGET or Compare credit cards profile sheet.
Referenceshttp://en.wikipedia.org/wiki/Credithttp://www.bankhs.com/teachers/utah_bankru
ptcy.htmlhttp://www.utah.freebankruptcyevaluation.co
m/bankruptcy-statistics.htmlwww.Suzeorman.comUEN Data Base
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