Credit ~ Next Steps

1. Credit ~ Next Steps

2. Homework (Passport Page 38)

3. Welcome! • Paying Down Debt • Debt Snowball • Predatory Lending Trap • Types of Predatory Loans • Payday Loans • Refund Anticipation Loans • Car Title Loans • Rent-to-Own Contracts • Alternatives to Predatory Loans

4. How’s It Going?

5. What Do You Know?

6. Pay Off Debt • Stop acquiring new debt • Establish savings • Implement a debt snowball • List all debts from the smallest balance to largest • Pay the minimum on everything but the smallest debt • Pay as much as you can on the smallest debt • When the smallest debt is paid, take the monthly payment you were making on that debt and add it to the monthly payment you were making on the second smallest debt • Continue this process until you are DEBT FREE!!!

7. Debt Snowball: Example

8. Predatory Lending TRAP

9. What is Predatory Lending? Unfair Deceptive Targets lower-income & minorities Preys on the vulnerable Unreasonable Fraudulent wreaks havoc

10. Non-Mortgage Predatory Loans Payday Loans Car Title Loans Refund Anticipation Loans Rent-to-Own Contracts

11. Payday Loans • Small cash advances ~ $500 or less at a time • Must repay loan back within two weeks • Payment Options: • Postdated personal check • Authorization for automatic withdrawal • 195% APR or higher! • The usual cost is $15 for every $100 borrowed for a two week period.

12. Payday Loan: Example $100 loan ( 2 weeks) $15 fee 3,685%EIR 390% APR

13. Virginia Payday Loan Regulations • Limited to $500 • Only one loan at a time • Term of the loan must be at least twice as long as your pay cycle • Cannot be “rolled over” • Interest charge capped at 15% • Don’t let this fool you! • A 15% charge for a 7 day loan is equal to an APR of 780%!

14. Refund Anticipation Loans • Short-term cash advance against an anticipated income tax refund • Annual Percentage Rates from 60% to over 700% • Average is 115% • Usually beat IRS refund processing by only 5 to 10 days if you e-file

15. RAL: Real World Example For a tax refund of $2000, you might pay: RAL loan fee: $75 Electronic filing fee: $40 Tax preparer fee: $100 Total: $215 This is over 10% of your refund! This RAL has an APR of 142% and it beats the IRS by only 7-10 days.

16. Car Title Loans

17. Car Title Loan Procedures • Need free & clear title • Vehicle’s value determined • Loan-to-value ratio generally less than 33% • Typical loan is around 25% for 30 days • $500 loan becomes a $625 debt (300% APR)

18. Rent-to-Own • Merchandise is “rented” (e.g. TV) • Weekly or monthly rent until owned • No interest rate disclosure required • No limit to late fees charged if payment missed

19. Alternatives to Predatory Loans • Savings accounts • Salary advances • Loans from friends, relatives, religious institutions • Social service agencies • Working out extended repayment plan with creditors • Small loans from your bank or credit union

20. Saving Secured Loans/Credit Cards • Uses your savings as collateral • You still earn dividends • Available credit equals amount in savings • Help you build your credit score • Available to almost anyone, regardless of your credit history

21. What Have You Learned? (Post Test page 16)

22. Homework (Passport Page 40)

23. Questions?