Money Management and the Cost of Credit understand borrowing choices and consequences

1. Money Managementand theCost of Creditunderstand borrowing choices and consequences Linda Pacewicz Chase / Education Finance

2. 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!

3. Prime + _ #__ Based on Federal Reserve transactions (internal US) Usually fluctuates more often Monthly A larger number Libor + __#__ Based on International Lending transactions (more global) Usually fluctuates less often Quarterly A smaller number Understanding the TermsPrime vs Libor“Just 2 ways a bank chooses to conduct business”Like you choosing Visa or Mastercard; Coke or PepsiCheck with your lender for actual rates • 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

4. 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

5. 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

6. 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

7. The Three Credit Bureaus Equifax 1-800-525-6285 www.equifax.com Experian 1-800-397-3742 www.experian.com TransUnion 1-800-680-7289 www.transunion.com

8. The Breakdown

9. 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: Excellent Credit 725 – 850: Good Credit 625 – 725: Creditors may want to take a closer look at your factors, but overall an average risk 550- 625: Higher risk. Not be eligible for the best rates Below 550: Poor credit risk. Most likely will be turned down for most credit/loans unless there are factors like good collateral

10. Increasing your score Scores will improve, as credit obligations are continuously handled responsibly • 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

11. 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

12. Credit Cards 101-what to know- • Interest rate/finance charges • fixed or variable rates • 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

13. 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

14. 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!

15. 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

16. 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

17. File your card to avoid impulse buying Make payments on time to avoid late fees Comparison shop for best credit card deals Annual Percentage Rate Interest rate Fees Rewards Credit Card Do’s

18. 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

19. 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

20. 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

21. 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

22. Credit Card Smarts You know you’re in trouble when you... 1.Are borrowed to the max 2. Owe more every month 3. Barely make the minimum payment 4. Use credit cards for groceries and clothing 5. Get cash advances to make payments 6. Spend more than 15% of monthly income on credit card payments

23. 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.orgNational Foundation for Credit Counseling

24. 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

25. When borrowing, Compare the Costs • Immediate Repayment • Begin to attack the debt; less costs • Deferred payments • Interest accrues; more costs • 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

26. Budget Tips: Stop and take a look Budgeting correctly will ensure good credit ratings which makes debt more affordable • 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 • Third: Examine the difference • Set some goals If expenses exceed income 2 options: • Increase income, or • Cut expenses

27. Top 3 Causes of Budget Failure • Negative Attitude * If you think of budgeting in negative terms (diet; handcuffs) you are sure to fail • 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 • 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 .

28. 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. • Can improve family and personal relationship – reduces those money conflicts. • Helps you sleep better at night – eliminates lying awake worrying about how you’re going to make ends meet.

29. Cutting Expenses • 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 • 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

30. Checking Accounts • Safer than carrying cash • Avoids impulse buying with ‘pocket money” • Questions to ask when opening an account: • 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

31. Savings AccountsMake money work for you Get in the habit of saving! • 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 • Tips to save: • 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….

32. 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 • Do research, visit websites

33. 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!! ======================================================================= 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 ======================================================================= 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

34. Use desk and file cabinet Set up folder system Filing System “Bills to be paid” “Documents to be filed” Use a calendar & write ‘due dates’ Folders Passport, birth certificate, SSN card Credit card and Student Loans Credit Report Information File Organize Your Documents

35. 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

36. 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

37. THANKS ! Comments/Questions Chase www.ChaseStudentLoans.com www.ChaseSelectLoans.com www.ChasePrivateLoans.com