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Credit Wisdom

Learn the importance of credit, how to manage money and credit wisely, and avoid common pitfalls. Discover the three Cs of credit and how they impact your financial future. Explore the advantages and disadvantages of credit cards and the risks of payday loans.

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Credit Wisdom

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  1. Credit Wisdom

  2. Managing Money & Credit:A Lifelong Skill

  3. Why Credit is Important • FICO or credit score: • Credit Card Issuers & Lenders • Determine APR • Auto Insurers • Determine Premium • Employers • Are you a worthy hire? • Landlords • Are you a reliable tenant?

  4. The Three Cs of Credit • Character: The way you handle money and have repaid debt in the past. • Capacity: Your ability to pay the debt after considering other monthly expenses. • Capital: The value of your assets or what you own.

  5. What’s Next? Life After High School

  6. Learning Boosts Earning

  7. Your Paycheck • 50% of U.S. young adults work • Earn a minimum of $7.15 per hour nation wide. (9.19 WA) • Work an average of 20 hours / week • $572 – Monthly ($735 WA) • $6846 –Annual ($822 WA)

  8. Where Does All the Money Go? • Food, Snacks & Beverages • Movies • School Events • Music, CDs, Concerts • Clothing, Cosmetics & Shoes • Cars, Gas & Insurance • Cell Phones

  9. Credit Cards – The Perceived Great Equalizer • Credit lets you buy more than they can afford. • Credit and credit cards • Current World Problem • Needs are essentials • Food • Shelter • Clothing • Reliable transportation • Wants are extras • Eating out • Big, expensive house • Shop till you drop • Brand new or an expensive car

  10. Who Uses Credit Cards? • Use credit cards = 600 million credit cards • Pay off monthly= 60% females, 55% males • Carry a balance= 39 % of U.S. households carry credit card debt( down from 2009) • 2.93% of consumers are delinquent on their credit cards. • 2/3 of credit card users don’t pay off their balance Average debt per household varies from $8000- $5000 Nationwide

  11. America’s Love of Credit • 1.6 million bankruptcies were filed in 2004 • Americans are declaring bankruptcy at 10x the rate they were during the depression

  12. Personal Savings Rate Declining • 1974 to 1984 • 10% • 1985-1994 • Fell to 4.8% • 2004 • 1.8% • 2005 • -0.5% • 2006 • -0.7% • Hasn’t been negative since the Great Depression

  13. Saving for the Future • Save 10% of every monthly check • Use savings for: • Emergencies • Big purchases • Trip with friends • Car • Down payment on a home • Retirement

  14. Advantages & Disadvantages of Credit Card • Advantages • Convenient • On-line purchases • Kick-backs i.e. cash, airline miles, etc. • Can rent a car • Disadvantages • Doesn’t seem like real money • Easy to overspend

  15. Use Credit Wisely You should use credit to buy: • House • Car • Education (student loan) and you’ll avoid trouble

  16. Only Buy What You Can Afford • Pay off monthly balances • Avoid interest • Avoid late fees • Know your budget • Know yourself • Are you an impulse buyer?

  17. Pay More than the Minimum • If you have a credit card balance: • Make a plan to pay as much as you can every month • Start with the credit card with the highest interest rate • Pay off the credit cards as quickly as you can

  18. Limit the Number of Cards Americans have an average of 8 credit cards

  19. Always Pay on Time • Avoid late fees • Keep your money in your pocket • Maintain a good credit score • Late payments have the biggest negative impact. • Easiest way to make money is to save money.

  20. Choose a Low Rate • 0% is lowest • But remember the catch • 15.75% average fixed rate. • If you pay your card off every month, the rate won’t matter. • Stores like Macy’s, Target, Sears can charge as high as 24% interest.

  21. What Not to Use Credit For: Pay Day Loans

  22. Payday Loans / Check Cashing Stay Away! What is it? • Cash Loan • Extremely High Interest • Short-term (14 – 45 days)

  23. How Do They Work? • You postdate a check • They give you a loan • Loan last for 2 weeks • They charge you a fee for borrowing the money—equivalent APR can be over 300%.

  24. WA State Payday Regulations • Can loan up to $700 • Charge $15 per $100 borrowed up to $500 • Charge $10 per $100 borrowed above $500 • You pay $95 to borrow $700 for two weeks • Annual APR = 391.07%

  25. Risks of Payday Loans • Not a long-term cash solution • Borrowers get trapped in a payday loan cycle of debt • Take out loan after loan

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