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1
Staying on Good Terms: Managing Credit
and Debt OSFA
Office of Student Financial Aid
2
Types of Credit
Credit Alternatives
Open-End Credit• Short term: electric and power bills•Revolving: credit, gas, and retail cards
Closed-End Credit• Automobile Loans• Mortgage Loans• Student Loans
3
Buy/consume now, pay laterEmergenciesEstablish favorable credit historyInsurance and fraud protection
The Upside of Credit Use
4
The Downside of Credit Use
The price of credit is highAdditional fees add to the costCredit makes it easy to overspendYou are vulnerable to fraud
Source:Source:Garman & Forgue (2003), Garman & Forgue (2003), Personal FinancePersonal Finance Seventh Edition. Houghton Mifflin Seventh Edition. Houghton Mifflin pg. 165 pg. 165
5
Credit and Debt:All Cards Are NOT Created Equal
Credit – Credit Cards– Charge Card
Debt– Stored Value Card– ATM/Check Card
Smart Cards*
*Source: www.javaworld.com
6
Credit Myths
You must give your permission for a credit report to be issued
The credit reporting agency denied me credit
When paid, the bad debt will go awayI’m not responsible for debts on joint
accounts or co-signed accounts if they are not my purchases
7
When Parents Give Students Credit Cards
“Nationally, college graduates leave school with an average of $18,900 in debt from student loans...”
“…(a consumer credit counselor) has worked with students with as much as $14,000 in credit-card debt.”
Source:Source:http://www.creditcardoffers101.com/News.html?url=http://api.yellowbrix.com/api/?http://www.creditcardoffers101.com/News.html?url=http://api.yellowbrix.com/api/?service=story&method=xml&ID=trafficlogic&story_id=39768469&password=ldfclyservice=story&method=xml&ID=trafficlogic&story_id=39768469&password=ldfcly
8
Ten Credit Mistakes:
1. Overspending
2. Carrying a permanent balance
3. Making only minimum payments
4. Holding too many credit cards
5. Assuming low interest rates stay the same
Continue...
9
Ten Credit Mistakes:
6. Paying higher interest 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
10
Signs of Credit Trouble
Charge credit cards to the limit
Use one card to pay for another
Do not know your total debt
Borrow from family members to pay debt
Using cash advances
11
Staying Out of Credit Card Trouble
Shop for the credit card with the best terms
Limit the number of credit cards you have
Don’t charge perishable items
Payoff as much as possible every month
12
Pay As Much As You Can!
% Balance paid each month Interest Time to Pay Off
2.0 % $ 8,390 32 years, 3 months
2.5 % $ 4,641 12 years, 7 months
3.0 % $ 3,222 8 years, 7 months
($3,800 Balance at 17% APR)
13
Timing Makes a Difference
Try to pay all credit card bills on time
Pay off the credit card with the highest interest rate first
Don’t Buy on impulse - Delay gratification
Notify your creditors if you can’t make your payments on time
14
Talking to Your Creditor
Ask them to lower your interest rateAsk them to lower your credit limitAsk them to change when your bill is
dueDiscuss your situation with them and
set up a payment plan
15
Other Credit Card Suggestions
Report lost/stolen cards immediately
Store your credit cards in a safe place
Track your expenses
Document your concerns in writing
Order a copy of your credit file regularly
16
What’s In Your Credit File?
Personal Identification InformationPublic Record InformationCollection Agency Account InformationCredit Account InformationCompanies That Requested Your Credit FileMost negative information stays on your file
7 yrs, except for bankruptcy which can stay up to 10 yrs.
17
Your Credit Report Impacts:
Purchasing a carPurchasing a home Obtaining a loanRenting an apartmentAuto and life insuranceAcquiring a cell or home phoneSeeking employment
18
How to Obtain Your Credit Report
EQUIFAX: 800-685-1111
www.equifax.comEXPERIAN: 888-397-3742
www.experian.comTRANS UNION: 800-888-4213
www.transunion.com
19
Beware of Higher Costs
Payday LoansTax Refund LoansRent-to-OwnCar Title LoansBounced Check Protection
20
Credit Laws
Fair Credit Reporting Act
Equal Credit Opportunity Act
Truth-In-Lending
Fair Credit Billing Act
Fair Debt Collection Practices Act
21
Consumer Credit Counseling Services
Budget Counseling
Debt Repayment Plan– you agree to not use the cards– pre-arranged agreement with creditor(s) for
reduced payment and interest in some cases– you pay CCCS and they pay your creditors– CCCS will not put the repayment plan on your
credit report BUT creditors may
22
For Individual Help Contact:
Consumer Credit Counseling Service
www.cccsatl.org800-251-CCCS
23
Web site
E-mail address
Phone #
24
Special Thanks to...