Credit

Why should you have a plan for your money?

1. So your basic needs are covered

2. So you can get what you want (when you can afford it)

3. So you don’t overspend

4. So you don’t have to get all stressed out or feel guilty about what you spend

Financial Planning Step 1: Think itS.M.A.R.T. goals are goals that are:

S – SpecificM – MeasurableA – AttainableR – RealisticT – Time Based

Financial Planning Step 2: Track it

Keep track of your income for a month:Paychecks…………………………. $600Allowance………………………….$80Gas money from friends…….$40Total…………………………….…..$720

Keep track of how much you spend in a month:

Lunch….……………………………. $160Gas…………………………………… $80Cell Phone Bill………………..….$95Netflix……………………………….$9Car Payment…..…….…………..$200Total………………………………..$544

Financial Planning Step 3: Plan It

Get it on paper

1. Write down your income – be specific

2. Write down your PYF goal

3. Write down your expenses – be specific

4. Do the math.

Income

PYF Goal

Expenses

Balance

BalanceBalance your budget by subtracting your expenses from your income.

1. CommitOnly spend what you have planned to spend

2. Stay on trackUsing your tracking system…Track your spending and compare it to your plan.Track your income and compare it to your plan.Often.

3. Adjust as neededIncome increases. Or decreases.Goals change and you want to make a purchase that will

require credit.

Financial Planning Step 4: Do it

Let’s talk about credit.

What is Credit?1. The ability to get things before you pay for

them because someone trusts that you will pay for the items in the future.

2. Money someone is willing to loan to you.

What is Debt?1. The state of owing money

2. The amount of money you owe

What is a Loan?Money that is borrowed and is expected to be paid back…

with interest

An installment loan is a loan repaid with a fixed number of equal payments.

What is Interest?Money you pay back on top of the money you

borrowed.

Why are you charged interest? Because you are delaying the repayment of money that was lent to you.

What is Principal?The actual dollar amount that someone has

loaned to you.

What is APR?Annual Percentage Rate.

Expressed as a percent of the amount borrowed.

Translated into a dollar amount.

This is what it will cost you to borrow money. This is the price of your loan.

What is Collateral?An asset promised as security

for repayment of a loan.

If you do not make your payments, the lender hasthe right to take your “collateral” as payment.

What is Secured Debt?Debt that is guaranteed by collateral.

What is Unsecured Debt?Debt that you guarantee only with your word.

What is Equity?The difference between the value of

your collateral and the amount you still owe on the loan.

Value – Principal Owed = Equity

Your car is worth $14,000You owe $8,000

Your Equity = $6,000

Why put down a Down Payment?

1. Lowers your monthly payments2. Shows the lender you have vested interest3. Increases your equity in the vehicle

What is a Credit Report?A record of your credit activities.

It lists credit-card accounts or loans you may have, past and present.

It shows the balances and how regularly you make your payments.

It also shows if any action has been taken against you because of bills you didn’t pay.

What is a Credit Score?A number that measures how likely

you are to repay debt on time.

It's calculated and based on your history of repaying debt.

Where do Credit Reports and Credit Scores come from?

Who can see my Credit Report?(1) Creditors

(2) Employers and Potential Employers

(3) Insurance Agencies

(4) Government Agencies

(5) Judges

(6) Landlords

(7) Yourself (if you’re at least 18)Go to AnnualCreditReport.com

(8) Anyone you specify in writing

Credit Activity BreakThe Loan Process

Borrower Terry R. Fernando G. Violeta B.

Principal $20,000 $20,000 $20,000

Credit Score

Interest Rate

Payment

Term

Interest Paid

Total Paid

Difference

How Much Does Bad Credit Behavior Cost?

Borrower Terry R. Fernando G. Violeta B.

Principal $20,000 $20,000 $20,000

Credit Score 832

Interest Rate

Payment

Term

Interest Paid

Total Paid

Difference

How Much Does Bad Credit Behavior Cost?

Borrower Terry R. Fernando G. Violeta B.

Principal $20,000 $20,000 $20,000

Credit Score 832 691

Interest Rate

Payment

Term

Interest Paid

Total Paid

Difference

How Much Does Bad Credit Behavior Cost?

Borrower Terry R. Fernando G. Violeta B.

Principal $20,000 $20,000 $20,000

Credit Score 832 691 577

Interest Rate

Payment

Term

Interest Paid

Total Paid

Difference

How Much Does Bad Credit Behavior Cost?

Borrower Terry R. Fernando G. Violeta B.

Principal $20,000 $20,000 $20,000

Credit Score 832 691 577

Interest Rate 2.43%

Payment

Term

Interest Paid

Total Paid

Difference

How Much Does Bad Credit Behavior Cost?

Borrower Terry R. Fernando G. Violeta B.

Principal $20,000 $20,000 $20,000

Credit Score 832 691 577

Interest Rate 2.43% 5.19%

Payment

Term

Interest Paid

Total Paid

Difference

How Much Does Bad Credit Behavior Cost?

Borrower Terry R. Fernando G. Violeta B.

Principal $20,000 $20,000 $20,000

Credit Score 832 691 577

Interest Rate 2.43% 5.19% 16.73%

Payment

Term

Interest Paid

Total Paid

Difference

How Much Does Bad Credit Behavior Cost?

Borrower Terry R. Fernando G. Violeta B.

Principal $20,000 $20,000 $20,000

Credit Score 832 691 577

Interest Rate 2.43% 5.19% 16.73%

Payment $355

Term

Interest Paid

Total Paid

Difference

How Much Does Bad Credit Behavior Cost?

Borrower Terry R. Fernando G. Violeta B.

Principal $20,000 $20,000 $20,000

Credit Score 832 691 577

Interest Rate 2.43% 5.19% 16.73%

Payment $355 $380

Term

Interest Paid

Total Paid

Difference

How Much Does Bad Credit Behavior Cost?

Borrower Terry R. Fernando G. Violeta B.

Principal $20,000 $20,000 $20,000

Credit Score 832 691 577

Interest Rate 2.43% 5.19% 16.73%

Payment $355 $380 $495

Term

Interest Paid

Total Paid

Difference

How Much Does Bad Credit Behavior Cost?

Borrower Terry R. Fernando G. Violeta B.

Principal $20,000 $20,000 $20,000

Credit Score 832 691 577

Interest Rate 2.43% 5.19% 16.73%

Payment $355 $380 $495

Term 60 months 60 months 60 months

Interest Paid

Total Paid

Difference

How Much Does Bad Credit Behavior Cost?

Borrower Terry R. Fernando G. Violeta B.

Principal $20,000 $20,000 $20,000

Credit Score 832 691 577

Interest Rate 2.43% 5.19% 16.73%

Payment $355 $380 $495

Term 60 months 60 months 60 months

Interest Paid $1,300

Total Paid

Difference

How Much Does Bad Credit Behavior Cost?

Borrower Terry R. Fernando G. Violeta B.

Principal $20,000 $20,000 $20,000

Credit Score 832 691 577

Interest Rate 2.43% 5.19% 16.73%

Payment $355 $380 $495

Term 60 months 60 months 60 months

Interest Paid $1,300 $2,800

Total Paid

Difference

How Much Does Bad Credit Behavior Cost?

Borrower Terry R. Fernando G. Violeta B.

Principal $20,000 $20,000 $20,000

Credit Score 832 691 577

Interest Rate 2.43% 5.19% 16.73%

Payment $355 $380 $495

Term 60 months 60 months 60 months

Interest Paid $1,300 $2,800 $9,700

Total Paid

Difference

How Much Does Bad Credit Behavior Cost?

Borrower Terry R. Fernando G. Violeta B.

Principal $20,000 $20,000 $20,000

Credit Score 832 691 577

Interest Rate 2.43% 5.19% 16.73%

Payment $355 $380 $495

Term 60 months 60 months 60 months

Interest Paid $1,300 $2,800 $9,700

Total Paid $21,300

Difference

How Much Does Bad Credit Behavior Cost?

Borrower Terry R. Fernando G. Violeta B.

Principal $20,000 $20,000 $20,000

Credit Score 832 691 577

Interest Rate 2.43% 5.19% 16.73%

Payment $355 $380 $495

Term 60 months 60 months 60 months

Interest Paid $1,300 $2,800 $9,700

Total Paid $21,300 $22,800

Difference

How Much Does Bad Credit Behavior Cost?

Borrower Terry R. Fernando G. Violeta B.

Principal $20,000 $20,000 $20,000

Credit Score 832 691 577

Interest Rate 2.43% 5.19% 16.73%

Payment $355 $380 $495

Term 60 months 60 months 60 months

Interest Paid $1,300 $2,800 $9,700

Total Paid $21,300 $22,800

Difference +$1,500

How Much Does Bad Credit Behavior Cost?

Borrower Terry R. Fernando G. Violeta B.

Principal $20,000 $20,000 $20,000

Credit Score 832 691 577

Interest Rate 2.43% 5.19% 16.73%

Payment $355 $380 $495

Term 60 months 60 months 60 months

Interest Paid $1,300 $2,800 $9,700

Total Paid $21,300 $22,800 $29,700

Difference +$1,500

How Much Does Bad Credit Behavior Cost?

Borrower Terry R. Fernando G. Violeta B.

Principal $20,000 $20,000 $20,000

Credit Score 832 691 577

Interest Rate 2.43% 5.19% 16.73%

Payment $355 $380 $495

Term 60 months 60 months 60 months

Interest Paid $1,300 $2,800 $9,700

Total Paid $21,300 $22,800 $29,700

Difference +$1,500 +$8,400

How Much Does Bad Credit Behavior Cost?

What is a Default?Failure to pay back the debt according

to the terms to which you agreed.

What is Repossession?When the lender takes the collateral

that was used to secure the loan.

This happens when you default.

Let’s talk aboutproperty loans.

What is a Mortgage?When you borrow money

to buy property or a house.

What is Foreclosure?When the lender takes possession of a mortgaged

property as a result of you not paying your mortgage.

Let’s talk aboutcredit cards.

What is a Credit Card?A card issued by a company giving you the option to

borrow funds, usually at the point of sale.

Credit cards charge interest and are bestused for short-term financing.

Interest rates for credit cards are usually higher than interest rates for other loans.

A debit card is NOT a credit card and will not help you increase your

credit score – But can decrease it.

What is a Credit Limit?The maximum amount someone will lend to you.

What is an Annual Fee?An amount that some credit card companiescharge each year for the use of a credit card.

What is a Finance Charge?Just like the interest on a loan, a finance charge is

the actual dollar cost of carrying a balance on your credit card.

What is a Universal Default?A clause included in many credit card company

agreements that allows them to increase your interest rate if you make just one late payment.

They can do this without notice.

What is Bankruptcy?A legal process to restructure your debt when you can

no longer make all of your required payments.

It severely damages your credit score.

It ruins your credit history for 7-10 years.

By following the 4 steps to Financial Planning, you will be in the best position to avoid bankruptcy.

But all of us can get off track – especially if hit by Divorce, Death, Disability, and Dismissal from Job.

So, if you start to struggle, go see a Financial Counselor. (We have 4 available at TxPFCU.)

If you don’t do that, contact all your creditors andtry to work something out with them.

DON’T just stop paying and DON’T stop talking to your creditors!

After all, YOU borrowed the money. The lender gave it to you in good faith.

Don’t break your promise. Work something out!

If you have any questions about financial planning, credit, investments, or anything else, please ask!

Shelley Carlson/ Director of Marketing – SCarlson@TexasPartnersFCU.orgKen Chambers/ Lending Manager – KChambers@TexasPartnersFCU.org

Sidney Henderson/ Marketing Assistant – SHenderson@TexasPartnersFCU.orgStephanie Garrett/ Accountant – SGarrett@TexasPartnersFCU.org

Brittany Bringman/ Bookkeeper - BBringman@TexasPartnersFCU.org

You can also get a hold of us on our Facebook page –www.Facebook.com/TexasPartners

Thanks again, everyone… We’ll see you at the next workshop!

Your friends @ Texas Partners FCU