Money Management
and the
Cost of Credit
understand borrowing choices
and
consequences
Linda Pacewicz
Chase / Education Finance
How?
•
Understanding the terms of credit
• What is a credit score?
• The costs of credit cards
• The importance of budgeting
• Tips to manage your money and keep debt low
Creating a comfort level with decisions
• One size doesn’t fit all!
Understanding the Terms
Prime vs Libor
“Just 2 ways a bank chooses to conduct business”
Like you choosing Visa or Mastercard; Coke or Pepsi
Check with your lender for actual rates
Prime + _ #__
Libor + __#__
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Based on Federal Reserve
transactions (internal US)
 Usually fluctuates more often
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Monthly
A larger number
Based on International Lending
transactions (more global)
 Usually fluctuates less often
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Quarterly
A smaller number
T-Bill (Treasury Bill) (Tbill + _#_ ) Gov’t. issued short term debt
The rate is used for Stafford and PLUS education loans
- Variable rate for loans disbursed before 7/1/06
- Fixed rate for loans disbursed after 7/1/06
Understanding the Terms

APR – Annual Percentage Rate
“the actual cost of credit”
The cost of your loan expressed as a yearly percentage rate.
• A look at the rate you'll be paying over the course of one year
• Includes the cost of interest, service charges and fees
– APR must be indicated clearly on your lending documents
• Rules by the Federal Truth and Lending Act
– Variable vs Fixed
• Variable changes / Fixed stays the same
Borrowing money…..
Private loan Interest rates are determined by
your FICO score
“Credit Score”
credit cards; car loans; private student loans;
personal loans; home loans; ….and…..ability to
rent an apartment; get a job
Credit Scores and Reports
Credit Scores are a “Snapshot” of your credit behavior

Predicts future performance by analysis of past payment behavior

Allows lenders to identify who is likely to perform well in the
future – even if their information reveals past problems.

It’s your “risk factor”

Computer programs transform information from your credit report
into a number – ‘a score’

To create a score – need at least 1 account open for 6 months or
greater
The Three Credit Bureaus
Equifax
1-800-525-6285
www.equifax.com
Experian
1-800-397-3742
www.experian.com
TransUnion
www.transunion.com
1-800-680-7289
The Breakdown
What is a good score?
Computers assign numbers to certain factors to tell creditors
the likelihood that you will repay on time.
Scores generally range from 400’s to 900’s
remember different lenders interpret results differently, but all
are consistent
Above 850:
725 – 850:
625 – 725:
550- 625:
Below 550:
Excellent Credit
Good Credit
Creditors may want to take a closer look at
your factors, but overall an average risk
Higher risk. Not be eligible for the best rates
Poor credit risk. Most likely will be turned down
for most credit/loans unless there are factors like good
collateral
Increasing your score
Scores will improve, as credit obligations are
continuously handled responsibly
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Check that credit report information is accurate
Make a list of what you owe – now you know!
Try and refinance high interest debt
Pay bills on time – the most important!
Get current if you’re past due
Set limits to amounts you really need
Cancel credit cards that are no longer used (open accts)
Keep balances low and pay them off as soon as you can
Don’t continually apply for credit
Get your credit report free
New law from the FTC and Fair Credit
Reporting Act as of Sept.2005
www.annualcreditreport.com
Once / year – from all 3 agencies
– Free detailed reports
– minimal cost for your score
Watch for copy cat scams and pop-ups
Credit Cards 101
-what to know-

Interest rate/finance charges
– fixed or variable rates

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Annual Percentage Rate (APR)
Introductory Rates
– Read the fine print – what happens next

Balance Transfers
– Can hurt your credit score if moving too much
– Can also help reduce interest charges

Grace Periods
– Interest accrues
– When are you considered past due
Credit Cards 101
-what to know
Amount Due
– Read your agreement - % of the balance
– Min’s usually low (can be 2%)
READ YOUR STATEMENT= interest can be higher than the min.
due!

Annual Fees
– Read your agreement

Other Fees
– Late fees, over limit

Cash Advances
– Different and always higher interest rates

Credit Limit
– The maximum amount of credit on the card
Credit Card Advantages

Build a positive credit history
 Security in event of emergencies
 Reduced need to carry cash
 Enhance personal responsibility and
independence
 Good management allows lower interest rate
negotiation!
Credit Card Disadvantages

Ruin your credit rating
 Unable to obtain car loan or mortgages,
 High cost of carrying balances
 Many college students don’t realize the
outcomes of credit card abuse
 Too convenient, easy to misuse
 Easy to become deep in debt, hard to get out;
bankruptcy
Credit Card Do’s

Limit yourself to 1 or 2 major cards
 Keep your limits low ($500 limit)
 Use only for emergencies
 Only charge what you can afford to pay off
 Pay off the balance in full each month or plan
for short term debt
 Only charge tangible items if you’re carrying
balances
Credit Card Do’s
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File your card to avoid impulse buying
Make payments on time to avoid late fees
Comparison shop for best credit card deals
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Annual Percentage Rate
Interest rate
Fees
Rewards
Credit Card Don’ts
Don’t have a card if you don’t have self- control
with purchases
 Don’t EVER pay only the minimum payment
 Don’t take cash advances
 Use low cost student loans before using a credit
card for tuition

Costs of Credit
-an example$2,000 debt at 18% interest
$35.00 - minimum payment made
= 11 years to pay off the $2,000
You’ve paid $2,574.48 in interest!
You’ll pay $4,574.48 for the $2000 purchase
– DOUBLE your original cost
Looking at that example again
$2,000 debt at 18% interest
$60.00 – ABOVE minimum payment made
= 4 years to pay off the $2,000
You’ve paid $793.44 in interest!
You’ll pay $2,793.44 for the $2000
One more look at the example
$2,000 debt at 8% interest (good risk factor)
$35.00 – same minimum payment made
= 6 years to pay off the $2,000
You’ve paid $526.16 in interest!
You’ll pay $2,526.16 for the $2000
=======================================
$60 (above min) payment = 3 years to pay off
and only $269.39 interest
Credit Card Smarts
You know you’re in trouble when you...
1.
2.
3.
4.
5.
6.
Are borrowed to the max
Owe more every month
Barely make the minimum payment
Use credit cards for groceries and clothing
Get cash advances to make payments
Spend more than 15% of monthly income
on credit card payments
Credit Card Help

Contact family, financial aid office, consumer
credit counselors
 Cut expenses
 Pay off highest interest rate cards first
 Work out new repayment schedule
 Consolidate for a lower interest rate
 Rebuild credit rating – pay on time
 Check your credit rating
 www.nfcc.org National Foundation
for Credit Counseling
Debit Cards

Alternative to credit cards
 Replaces check writing
 Doesn’t replace balancing account
 Register all deposits and withdrawals
 Fees
 24 hour access
 Online banking
When borrowing, Compare the Costs

Immediate Repayment
– Begin to attack the debt; less costs
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Deferred payments
– Interest accrues; more costs
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Interest
– Capitalized; more costs
– Interest only payments – less costs

Finance charges – variable costs
– Dependent on a borrower’s risk factor
– Dependent on the type of borrowing
• Unsecured loans vs secured loans
UNIQUE decisions and determined by your lifestyle
Budget Tips: Stop and take a look
Budgeting correctly will ensure good credit ratings which
makes debt more affordable
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First: Determine how much you have to spend
Second: List all your expenses
– Estimate how much you spend on each item
– Determine Needs vs Wants
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Third: Examine the difference
– Set some goals
If expenses exceed income
2 options:
– Increase income, or
– Cut expenses
Top 3 Causes of Budget Failure
1.
Negative Attitude
* If you think of budgeting in negative terms (diet; handcuffs)
you are sure to fail
2.
Lack of Motivation
* Are you doing it for someone else like a nagging relative or a
repayment plan set up by a consumer counseling agency
3.
Unrealistic Expectations
* Setting up a budget will reveal large caches of hidden cash!!
You WILL see steady, measurable progress toward goals that really
matter to you .
6 Reasons Why Budgeting Can
Improve Your Life
A budget…
1.
Let’s you control your money instead of your money controlling you.
2. Tells you if you are living within your means.
3. Helps you meet your savings goals.
4. Helps you prepare for emergencies or large unanticipated expenses.
5. Can improve family and personal relationship – reduces those
money conflicts.
6. Helps you sleep better at night – eliminates lying awake worrying
about how you’re going to make ends meet.
Cutting Expenses
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Log and track ALL expenses for a month
Reduce variable expenses: clothing, entertainment, eating out
Avoid impulse purchases and peer pressure
Pay bills on time to avoid extra finance or late fees
• Pay above the minimum
– Plan a social budget
– Cook or use cafeteria meal plan
– Make a list before shopping – and stick to it
• Use coupons, try generic brands
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Watch ATM and checking fees – don’t abuse!
Used books instead of new
Walk, ride share, use public transportation
Email instead of long distance
• Beware of over the limit cell phone usage
Checking Accounts
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Safer than carrying cash
– Avoids impulse buying with ‘pocket money”
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Questions to ask when opening an account:
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Is there ATM fees? Do I need a branch or can I use internet?
What is the monthly service charge?
Does it pay interest – is there minimum balances?
Is there a charge or limit on writing checks?
How much does it cost to print checks?
What is the fee for a bounced check?
How much does overdraft protection cost?
What other fees might be charged?
Don’t assume ATM balances are correct
– Checks may not have cleared
– Keep receipts and write amounts in your register
Savings Accounts
Make money work for you
Get in the habit of saving!
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Questions to ask:
– Are there monthly fees for small balances
– Is there a minimum balance
– Can your check & savings balances be combined to meet
minimum balance requirements or earn interest
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Tips to save:
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Pay yourself first – put $ aside before spending
Keep loose change in a jar – and deposit it
Deposit monetary gifts from family
Think ‘do I need that’ if not, deposit the money
• Deposit anyway and then see….
Investments

Earn more on your money = higher risk
– Ie: Savings –> 3%, Mutual Funds –> 10%

Long term investments add up
– Compounded interest
– Reinvest earnings
– Example: $78.01/month at 18 years old (2.30/day)
• Earn 10% monthly, compounded monthly
• = 1 Million dollars at age 65
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Do research, visit websites
What I did with my money
$4.13 Starbucks Grande Pumpkin Spice Latte
$4.25 with tip x 5 days/week = $21.25/week
= $85.00 per month = 1,020.00 per year!!
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Set aside just $5 a day--maybe by not eating out--and it will
grow to about $22,400 in 10 years at 4% interest,
compounded monthly
SOURCE: Bankrate.com
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Deposit $100. / month for 40 years (from age 18) into an IRA
account at a 6.9% investment return = $250,000 at age 58.
SOURCE: FundAdvise.com
Organize Your Documents
Filing System Use desk and file cabinet
Set up folder system
Folders
File
“Bills to be paid”
“Documents to be filed”
Use a calendar & write ‘due dates’
Passport, birth certificate, SSN card
Credit card and Student Loans
Credit Report Information
Avoid ID Theft

Know what your credit reports say
 Keep track of bills and mail
 Be aware of surroundings
 Don’t give out sensitive information unless
justified
 Don’t leave receipts and personal info
unattended
Goals

Create a budget and monitor your
expenses
 Keep more of your money
– Savings; less spending; control cash

Work toward better interest rates
– Higher credit scores = lower rates

Use common sense
– Respond, don’t react
THANKS !
Comments/Questions
Chase
www.ChaseStudentLoans.com
www.ChaseSelectLoans.com
www.ChasePrivateLoans.com