Staying on Good
Terms:
Managing Credit
and Debt
1
Types of Credit
Closed End Credit:
Open End Credit
Short Term:
electric and
phone bills
Automobile, Mortgage,
and Student Loans
Revolving:
credit cards,
and retail cards
2
The Upside of Credit
Use
•
•
•
•
Buy/consume now, pay later
Establish favorable credit history
Protect against fraud
Cope with emergencies
3
The Downside of Credit
Use
• The price of credit is high –
KNOW the APR!
• Additional fees add to the cost
• Credit makes it easy to
overspend
• You are vulnerable to fraud
4
College Students and
Credit: What We Know
•
•
•
•
84% have at least one credit card
Half have 4 or more credit cards
Average outstanding balance of $3,173
89% incurred finance charges by carrying a
balance
• 55% of Georgia college students had debt,
an average of $17,296; 74% of graduating
seniors had debt
• Parents are borrowing too
Sources: Project on Student Debt, Sallie Mae
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All Cards Are NOT
Created Equal
• Credit
• Credit Cards
• Charge Card
• Debit
• ATM Card
• Check Card
6
• Other Types of Plastic Cards
• Stored Value Card
• Smart Cards
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Credit Card Accountability,
Responsibility, and Disclosure
(The CARD) Act of 2009
• Restrictions on interest rate
increases on existing debt
• Restrictions on late fees
• Eliminates universal default
• Statements must go out 21
calendar days in advance of the
due date
• 45 day notice on rate hikes
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http://financialtip.blogspot.com/2009/05/credit-card-reform.html
Credit Card Accountability,
Responsibility, and Disclosure
(The CARD) Act of 2009
• Eliminates fees for processing
payments
• Eliminates over-the-limit fees
– Unless consumer asks for account to
allow over-the-limit transactions
• Rates can’t be raised for the first
year after account is opened
– Unless creditor uses a promotional rate
• Reasonable payment allocation
– Apply payments to highest rates
• Mandatory 5 year life for gift cards
Credit Card Reform,
Continued
• Among other provisions, those
younger than 21 won’t be able to get
a credit card unless:
– A parent or guardian co-signs OR
– The young adult can prove s/he has
independent means to make payments
• Permission from co-signer required
to increase credit limits
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Credit Card Reform,
Continued
• Prohibits card issuers from offering
freebies like food or trinkets when
marketing on campus
• Stops prescreened credit card offers
for consumers under 21
Credit Myths
•
Once paid, bad debt will go away
•
I’m not responsible for debts on joint
accounts or co-signed accounts if they
aren’t my purchases
•
Credit is what got me into this mess
•
Credit card companies wouldn’t send me
offers if I couldn’t afford it
•
If I don’t use credit, I won’t be able to buy
anything
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Ten Credit Mistakes
1. Overspending
2. Holding too many credit cards
3. Making only minimum payments
4. Carrying a permanent balance
5. Assuming low interest rates stay
the same
13
Continue...
Ten Credit Mistakes
6. Paying a higher interest rate than
necessary
7. Paying extra for “incentive” credit
cards
8. Not reading the disclosure
statement
9. Paying off the wrong credit cards
first
10. Ignoring extra fees or penalties
14
Beware of
Higher Cost Credit
•
•
•
•
Tax Refund Loans
Rent-to-Own
Car Title Loans
Bounced Check Protection
15
Signs of Credit Trouble
• Maxing out credit cards
• Using one card to pay the balance
on another
• Not knowing your total debt
• Borrowing from family members
to pay debt
• Getting frequent cash advances
16
Staying Out of
Credit Card Trouble
• Shop for the credit card with the
best terms. Consider:
- Annual Fee
- APR
- Rewards Program
• Don’t charge perishable items
• Pay off as much as possible
every month
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Pay As Much As You
Can!
Balance: $3,000 Interest Rate: 18%
% of Balance Interest Time to Pay
Paid Each
Off
Month
2.0%
$7,930 37 years, 7
months
4.0%
$1,716 10 years, 10
months
5.0%
$1,240 8 years, 4
months
18
Timing Makes a
Difference
• Don’t buy on impulse
• Notify your creditors if you can’t
make your payments on time
• Report lost/stolen cards
immediately
19
Other Credit Card
Management Suggestions
• Store your credit cards in a safe place
• Report lost/stolen cards immediately:
– Fair Credit Billing Act limits liability on your
credit card to $50.
• Track your charges
• Document your concerns in writing
• Talk to your creditor:
– ask them to lower your credit limit
– ask them to change when your bill is due
20
Credit and Debt
Counseling Services
• Budget Counseling
• Debt Repayment Plan
– You agree to not use the cards
– The debt counselor may arrange for
you to make smaller payments and
pay less interest and fees.
– You pay the debt counselor who
pays your creditors
– The debt counselor will not put the
repayment plan on your credit
report BUT creditors may
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For individual help with serious debt
problems, contact:
CredAbility
www.CredAbility.org
800-251-CCCS
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For more information, contact:
The Peer Financial Counseling
Program
(insert web address, phone
number, and/or e-mail)
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Special Thanks to...
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