© 2004 aca international all rights reserved sponsored by personal finance with materials and...

© 2004 ACA International all rights reserved

Sponsored by

Personal Finance

With materials and information provided by: The American Bankers Association, the American Center for Credit Education, CBM Credit Education Foundation, Efunds, Experian, Federal Trade Commission, Minnesota Bankers Association, Nellie Mae, and the U.S. Department of Labor.

© 2004 ACA International all rights reserved© 2004 ACA International all rights reserved

The Basics:

• What is credit, anyway?• Establishing credit• Credit cards• Budgeting• Saving• Auto loans


• Credit – the amount of money available to you through lenders

• Debt – the amount of credit you’re using at any given time

• Creditor – any person / business that extends credit

Important definitions:


• Based on trust• Checks & balances

– Federal Trade Commission– Federal Reserve Board– local Better Business Bureau– local Chamber of Commerce– trade associations– consumer advocacy groups– credit reporting agencies

Our credit system


• Credit Reporting Agencies– Equifax– TransUnion– Experian

• Credit report– Reputation– Past history is an indicator of future performance– 7 years of info

Your Credit


• 3 national credit reporting agenciesEquifax (800) 685-1111 www.equifax.com

TransUnion (800) 888-4213 www.transunion.com

Experian (888) 377-3742www.experian.com

• Check your report:– Once a year– Before major borrowing decisions– Any time you are denied credit– If you suspect fraud

Obtaining your credit report


• Secured vs. Unsecured– collateral– risk

• Installment vs. Revolving – Installment: has set period of time

• auto loan• mortgage

– Revolving: open line of credit• credit card

Types of Debt


Establishing credit• 3 possible situations

– Good credit history– Bad credit history– Insufficient credit history

• Getting started – Credit cards– Co-signed loans– Start small– Start with familiar institution


• Good or bad?• Unsecured loans• Higher risk = higher rates & fees

Credit cards



Choosing your first card

• APR– Lower is better– Read the fine print!

• Fees• Perks• Balance Calculation Method

– Average Daily Balance– Two-Cycle Avg. Daily Balance (avoid!)

• Evaluating– bankrate.com– cardweb.com


“Unlike student loans, which are designed for students, credit cards are designed for people with income.”

(Nellie Mae)


Guidelines for using credit cards:

• Intended for short-term borrowing– Not for carrying a balance long-term– Have a repayment plan in mind beforehand

• Always pay more than the minimum! – Pay off every month when possible– Pay at least 2x the minimum

• Always pay on time!– Avoid late fees– Pay by phone or online for convenience


• Bankrate.com CalculatorBalance: $2,748

APR: 18%

min. payment: 2%

• How long to pay off…?

the minimum payment trap…

http://www.bankrate.com/brm/calc/MinPayment.asp


the minimum payment trap…

• At minimum payment: 434 months (36 yrs, 2 months)

$7,174.63 in interest

• At $80/month (min. + $25/month at start)

49 months (4 yrs, 1 month)

$1,143.01 in interest


vs.Durable goodsMp3 playerSnowboardNew tires for car

Consumable goodsConcert ticketsGasolineGroceriesDining out


Budgeting

• A budget is:– Not about restriction– About getting what YOU want!– The best tool you have for financial success– Continuous– Flexible– Individual– About the future


Prioritize• Needs

– Should always come before wants– Reflected in your budgeting & bill paying habits– Examples: savings, housing, reliable transportation, insurance

coverage, groceries, clothing, utilities, existing financial obligations.

• Wants– cable/satellite TV– Toys: boats, snow mobiles, expensive jewelry, cell phones

– Vacations– Dining out


Live Within your Means• Paying for living expenses on credit

– denial

• Savings• Lifestyle changes are difficult

– Justification– Entitlement

• See the “big picture”– Set goals


Debt: How much is too much?

• How much of your monthly budget is going to debt payments?

• Add up payment amounts for all loans, excluding mortgages (ex: auto loans, student loans, furniture loans, credit cards, personal loans, etc.)

• Divide by monthly gross income• 20% or higher = potential problem

• Ex: $275 car payment

$ 55 Visa card

$ 30 Discover card

$ 70 student loan

+ ________________

$430

$430 ÷ $2,000 = 0.215or

21.5% avoid taking on more debt!


Warning Signs


• no budget plan• no savings• denied for a loan• debt increasing month after month• total monthly debt payments ≥ 20% gross income• making only minimum payments• hiding purchases from others• cash advances/payday loans• late fees, over limit fees• creditors/collectors calling


Saving• “Pay Yourself First”• 10% of gross income• Long term

– Over 5 yrs– Retirement– Children’s education

• Short term– 1 to 5 yrs– Vacation fund– Down payment for a house


Auto Loans

• Borrow conservatively• It’s just a car

– Not a status symbol– Practical– Avoid emotion


• Shop for the loan carefully– Find the financing before you find the car– Know your credit score– The shorter the term, the better

• Depreciation• “Upside down”

Auto Loans


Auto Loans


$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

$20,000

1 13 25 37 49 61

Month

book value

loan balance

Depreciation:


Buying a car

• New vs. used• Negotiate!• Consider all the costs before you buy

– Insurance– Reliability/maintenance– Gas mileage


Conclusion

• Questions?

• Thank you!

© 2004 aca international all rights reserved sponsored by personal finance with materials and...

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