financial planning: credit cards. american debt the median credit card debt is about $2,000 this...
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Financial Planning:Financial Planning:Credit CardsCredit Cards
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American DebtAmerican Debt
• The median credit card debt is about $2,000• This means 50% of Americans have less than $2,000 in credit card debt and the other 50% of Americans have more than $2,000 in credit card debt.
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Average American IncomeAverage American Income
• Less than 9th grade education: $20,000• High school graduate: $32,000• Bachelor’s Degree: $57,000• Professional Degree: $120,00
http://www.buzzle.com/articles/average-american-income.html
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College Students & Credit College Students & Credit
• The average age at which a U.S. consumer gets their first credit card is 21• 84% of college students have credit cards• The average undergraduate student has $2,200 in credit card debt• The average college graduate has $4,100 in credit card debt• The average college graduate has nearly $20,000 in debt
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Financial Management Financial Management TrainingTraining
• 84% of undergraduates indicated they needed more education on financial management topics. In fact, 64%would have liked to receive information in high school
(Source: Sallie Mae, "How Undergraduate Students Use Credit Cards," April 2009)
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How Long Would It Take?How Long Would It Take?
• Pretend you owe $9,000 to your credit card company• If the interest on your credit card is 18%• The minimum payment is $135 per month.• How long would it take to pay off the $9,000 debt and finance charges?
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How Long Would It Take?How Long Would It Take?
• Trick question! You will NEVERNEVER pay off the $9,000 debt paying the minimum payment of $135 per month.• Do the math: $9,000 x .18 = $1,620 finance charge.• $1,620 divided by 12 = $135 per month
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Statistics Statistics
• The average interest rate is about 14.98% A.P.R. (Annual Percentage Rate)• As of 2008, the average number of credit cards Americans have is 3.5• The average credit card debt per borrower in the U.S. is $4,996 in 2012
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The Cost of TimeThe Cost of Time
• Let’s say you owe $3,000 on a credit card with a 15% interest rate• If you make the minimum payment of $75, it would take Over 4 ½ years to pay Over 4 ½ years to pay off your credit cardoff your credit card!
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Credit Card Debt Illustration Credit Card Debt Illustration
Running Time 3:24
http://www.youtube.com/watch?v=Vz05A6cP6Iw
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Credit ScoresCredit Scores
• The FICO score is one such popular scoring method. Its scale runs from 300 to 850.• The vast majority of people will have scores between 600 and 800.• A score of 720 or higher will get you the most favorable interest rates on a mortgage
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Breakdown of Credit ScoresBreakdown of Credit Scores
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What Makes Up Your Credit What Makes Up Your Credit Score?Score?
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Read Your Statement Read Your Statement CarefullyCarefully
• Look for errors. Write your credit card company immediately. • Has your rate been increased?• Check your balance. Know what you owe
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Credit Card TipsCredit Card Tips
•Pay on time. Late payments negatively affect your credit score. There may be fees for late payments.• Avoid cards with annual fees.
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Credit Card TipsCredit Card Tips
• Ask yourself, “Do I really need this?”• Make more than the minimum payment• Avoid reaching the credit card limit. Keep a portion of your credit limit for emergencies• Late fees may also put you over your credit limit and raise your rates
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Ignore the Free ChecksIgnore the Free Checks
• They aren’t free. • They are almost the same as a cash advance.• Interest accumulates immediately
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Say No to Skip PaymentsSay No to Skip Payments
• Usually occur before or after holidays• Interest is still being added to your balance
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Reject Offers to Increase Your Reject Offers to Increase Your Credit LineCredit Line
• Increasing your credit line is like having a whole cake in front of you to eat instead of a small piece.
Small Credit Line Large Credit Line
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Stop Using CreditStop Using Credit
• Paying off your balance is difficult if you keep adding to it.• Use your debit card or cash instead
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Reduce the Interest RateReduce the Interest Rate
• If you have a long history with the credit card company and have made payments on time, call and ask for a rate reduction
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Transfer Your BalanceTransfer Your Balance
• Transfer your balance to a credit card with a lower interest rate*.
• *be careful about introductory rates
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Credit Cards Rules of ThumbCredit Cards Rules of Thumb
• Never borrow more than 20% of your annual net income (after taxes)
• For example, if your annual net income is $9,600, you should not have a debt load more than $1,920
• Your monthly debt payments should never be more than 10% of your monthly net income.
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Credit Cards Can Be GoodCredit Cards Can Be Good
•Establishes credit history- Helpful in the future when you go
to buy a house or a car• Some credit cards give you cash back• You can borrow money for free if it is paid back in full in 30 days!
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Credit Cards Safety TipsCredit Cards Safety Tips
• Don’t let anyone use your card• Instead of signing the back of the card, write “Check I.D.”• Check your credit scores at least once a year to check for errors. It is free (once a year)
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What are Fees?What are Fees?
•FeesFees are how credit card companies make money off of you. Some of the most common fees include:
• Application fee• Annual fee • Cash advance fee• Going over your credit limit• Late fee• Finance charge (interest)• Returned check fee
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Sample Credit Card OfferSample Credit Card Offer
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Request Copies of Your Credit Request Copies of Your Credit ReportReport
• www.annualcreditreport.com• www.experian.com• www.transunion.com• www.equifax.com