Credit Card Budget
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Transcript of Credit Card Budget
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Debt Management
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Budgeting 101
The first step is to knowhow much money iscoming in so you knowhow much money youcanspend.
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Budgeting Basics:
Determine wants vs needs
Determine your short term and long term goals
Do the math
Are you tough enough to make the decisions thatwill get you where you want to be?
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Credit andCommercialism
Makes you feel inadequate
Answer is spend money whenever youneed to resolve a problem or meet a need
The have it now, pay later lifestyle isprevalent
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ATM Fees Computerware Home Parties Cosmetics
Online Services Beauty Parlor Over the limit fees
Beepers Dating Ice Cream Parking Fees CDs
Gifts Overage Fees Bottled Water BouncedChecks Clubs
Cigarettes Greeting Cards Tanning Haircuts Videos
Cable TV Late Payment Fees Dinners Out Bar Night
Books Fast Food Attacks Dry Cleaning Car Wash
Lottery Tickets Magazines Movie Rentals Sports
Lunches Out Film Development Gambling Prescriptions
Household Items Pet Costs Licenses Speeding Tickets
Cash Advance Fees Munchies Vending Machines Souvenirs
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What isCredit?
It is a loan, allowing you to receive goods andservices now and pay for them later
It is an agreement that the money borrowed willbe paid back
It is a debt, it is NOTincome
Itcomes with fees; interest and other charges
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Build your Credit Record
Often called your second resume.
Information stays on your credit report forseven years.
Your credit rating is your reputation. Employers,insurers, creditors, and leasing agents check yourcredit rating. Itcan affect job prospects, ability toobtain loans at lower interest rates, ability to buy a
house or other large items, and ability to rent anapartment.
Your credit record is used for determining
insuran
ce premi
ums, et
c.
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What is my FICO score?
Like your GPA the higher yo
ur FI
CO s
core the better
FICO scores range from 300-850
If your score is 680, Congratulations! Youre a primeborrower
If your score is below 680 youll be stuck with sub-primerates and will pay more for your loan
If your score is below 550, just forget it
A good FICO score of 750+ can mean your interest rate ona home loan will be 4 percentage points lower thansomebody with a 500 score. This can mean over $200,000in saved interest on a house.
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Getting a good
score
The longer you have a particular creditcard thebetter (it takes time to develop a credit history)
Pay your bills on timeKeep your account balances below 50% of youravailable credit
Be careful aboutco-signingAvoid excessive inquiries
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Use of Family Resources
Keep communication lines open
Treat your family with more respect than creditorsbecause they may be the last source of security,financial and moral support
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Fees, fees, and more feesInterest rate fees--what you pay for using the $$usually 17% - 21% for students (after intro rate)
Annual fee for just having the creditcardOver the limit fees, charged whenever you exceedyour credit limit
Late payment fees
Transaction fees
Other miscellaneous fees
read the fine print!!!
CreditCards: The Basics
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Plastic Money: The Basics
DebitCards
allow access to checking account via ATMs and pointof sale (POS) terminals
amount is deducted from checking account
not a charge card, must have the funds available
SmartCardsthese cards store personal information
may be loaded with a certain dollar value thatcan
then be spent at POS terminals
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Plastic Money: The Basics
Charge Cards
must be paid in full every month (AMEX)
provides
convenien
ce of not having to pay forpurchases with cash, but balance may not be
carried over month-to-month
CreditCards
operate on a credit limit and revolving basis
if not paid-in-full within grace period, interest ischarged on the remaining balance
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CreditCards:
Some disadvantages are:
college students are more likely than other types
ofcreditcardusers to run up debts they cannot pay
college students (with limited or no credit historyand income) are charged higher interest rates
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Table 1: Minimum Repayment Schedule on a $2,000CreditCard Loan at 19 PercentMonthly minimumpayment amount
Number of monthsto repay
Total interestpayment
$40 100 $1,994
$50 64 $1,193
$75 35 $619
$100 25 $424
Source: CreditCard Minimum Payment InterestCalculator, Daniel C. Peterson,
www.webwinder.com
Interest savings between lowest/highest payment = $1,570;
time saved = 75 months or 6.25 years!
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CreditCards:
Characteristics of high-risk use
Average creditcard balances over $1,000
Owning four or more creditcardsCarrying a balance each month
Using creditcards to charge tuition or fees
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CreditCard Donts
Dont get more than one
Dontuse them for cash advances
Dontuse them to pay for basics: rent, groceries, etc.
Dontcharge more than youcan pay off in a month
Dont let banks increase yo
ucredit limit
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CreditCard Dos
Use a debitcard vs a creditcard
Use a card with no annual fee and low interest rates
Know all of your cards hidden fees
Always pay more than the minimum each month
Pay on time, all the time
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Good Vs Bad Debt
Gooddebt is debt that returns something of longterm value such as a higher education or home.
Baddebt is often categorized as short-term feelgood debt and may be unwise purchases that youcant afford anddont really need. Any baddebtover 15% of your annual income after taxesshould set off an alarm.
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Solutions
Redefine the good life your own way.
You have worked and studied hard to get intocollege and youdeserve to be in control withfinancial peace of mind rather than buy with credit
every pleasure, a
ctivity, or material thing
desire
d,for now, anyway.
Resist the pressure from your family, friends, andassociates to live a life style that is beyond what
youcan currently afford.
List your short-term financial obligations andgoals for each month, for the year, and future 5
years.
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Solutions
Focus on paying on the balance with the highestinterest rate.
Develop a budget
Live within your means Transfer creditcarddebt to a low interestcard or a
lower interest personal loan
Lose the creditcards
Use your savings
Sell stuff youdont need
Consolidate your student loans
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AvoidBankruptcy
Itdoes notdischarge student loans, child support,secureddebt, or income taxes
Goes on your record for 10 years
May hurt parents credit rating ifco-signed
Can keep you from getting a mortgage for ahouse, credit at reasonable rates, a job, orfrom being promoted
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Debt Warning Signs
Living from paycheck to paycheck
Making late, minimum, or skipping payments
Having creditcards at or near your credit limit
Arguing with family or friends over your spending habits
Being unsure of how much you really owe
Using cash advances to pay your bills
Having your creditcarddeclined
Having increasingly more of your income paying fordebts each month
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Youcan run..
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Stud
entCreditCard
DebtIf you have a problem get help!
Consumer CreditCounseling Services(CCCS)
call 800.388.2227
to be connected to the office nearest you
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Web Resources
National Foundation for Credit Counseling-http://www.nfcc.org/
NFCC Debt Advice- http://www.debt advice.org/
Practical Money Skills for Students-http://www.practicalmoneyskills.com
Mapping Your Future- http://www.mapping-your-future.org/features/dmbudget.html
Bankrate- http://www.bankrate.com
College Is Possible- http://collegeispossible.org
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The following individuals and organizations
contributed to this presentationU.S. Department ofCommerce, Bureau of the Census
Mapping Your Future
USA Funds Services
Dr. Flora Williams, Purdue University
Michele Colson, Debt ManagementConsultant
Jim Swisk, Michigan Guarantee Agency
Young Money
The Mint