CreditAbuseResistanceEducation

(CARE) Program

U.S. Bankruptcy Court – Southern District of California

CARE Program

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• Consumerism – Wants v. Needs

• Budgeting, Saving and Investing

• Credit Cards

• Why Should You CARE About Your Credit Score?

• Student Loans

• Bankruptcy

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Consumerism!

Wants vs Needs

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Consumerism – Good or Bad?

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Don’t Buy Stuff You Cannot Afford

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Responsible Consumption

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• You can spend more on needs if you spend less on wants.

• Set a budget and stick to it.

• Learn to save to buy a house or a car.

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Pay Now

• Pay cash for wants.

• Write a check.

• Use debit cards.– Debit cards take money

out of your checking account.

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Have $$ in Your Account!

• ATM fees.

• Overdraft charges.

• Bouncing a check can harm your credit.

Budgeting, Saving and Investing

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What is a budget?

• A budget helps you manage your money.• Calculate your “income.”• Calculate your “expenses.”

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Budgeting

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Income ExpensesGross Wages $3,000 Rent $750

Less Payroll Deductions

$500 Utilities $50

Net Income $2,500 Food $250

Clothing $25

Laundry $20

Transportation $300

Recreation $30

Insurance $90

Misc. Expenses $75

Total Expenses $1,590

Saving

• Simple interest Interest is paid only on the original amount

deposited; not on any accumulated interest.

• Compound interest “Interest on interest” Adds interest to the principle balance each period.

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Simple v. Compound Interest

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Year Simple Interest (10%) Compound Interest (10%)

0 $100 $100

1 $110 $110

2 $120 $121

5 $150 $161

10 $200 $259

20 $300 $672

30 $400 $1,744

40 $500 $4,526

50 $600 $11,739

The Beauty of Compounding

Would you rather have $1,000,000 today or have a penny today and double your money

everyday for a month?

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The Beauty of Compounding

$1,000,000 at 10% interest

= $1,100,000

$.01 and your money doubled everyday

= $10,737,418.24

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Save for Emergencies

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Credit Cards

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For “Big Ticket” Items

Unless you’ve saved lots of cash…

…you’ll probably use a credit card.

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• Grace Period

• Annual Fee

• Cash Advance Fee

• Late Fee

• Annual Percentage Rate (APR)

Credit Card Lingo

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• Different banks charge different APRs.

• “Shop” for a credit card.– Pay close attention to

various late fees and penalties.

Annual Percentage Rate• ANNUAL MEMBERSHIP FEE: Refer to your statement in

the month in which the fee is billed.

• RENEWING YOUR ACCOUNT: You may have your annual membership fee credited to your account if you close your account within 30 days from the mailing or delivery date of the statement containing the fee, even if you use your card during that period. You may call the Customer Service number or write to the Customer Service address on your statement during this 30 day period and your account will be terminated; we will credit your account for the amount of the annual fee.

• ANNUAL PERCENTAGE RATE: Refer to the Rate Summary section of this statement. Your periodic rates and APRs may vary.

RATE AND ACCOUNT SUMMARIES: The purchase and advance features of this account may be listed in the Rate Summary Section of this statement under the following titles: Standard Purch, Purch/Adv, Standard Adv, and various numbered Offers. The Account Summary section of this statement includes on the PURCHASES line subtotals for all purchase features, and on the ADVANCES line subtotals for all advance features, of the Previous Balance, new Purchases & Advances, Payments & Credits, FINANCE CHARGE and New Balance amounts.

PERIODIC RATES: (D) and (F) indicate a daily periodic rate. (M) indicates a monthly periodic rate.

FINE

PRINT!

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Credit Card Act 2009

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• A credit card CANNOT be issued to someone under 21 unless the person: Has a co-signor (over 21); or Can prove ability to repay.

• Before the law changed, the average college student owed about $3,000 in credit card debt.

Can Students Get a Credit Card?

Credit Card Promises & Tricks

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• Promise 1: “As low as 9.99% APR!”

• Promise 2: “Up to 5% cash back!”

• Promise 3: “Your card has a $3,000 credit limit.”

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Downside to Credit Cards

• Exceeding your budget.

• High interest rates and increased debt.

• Credit card fraud.

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Credit Card Tips

• Have only one credit card.

• Do not: Open new accounts just for low introductory

rates. “Max out” your credit card. Take cash advances. Let anyone else use your card!

Debit Card Basics

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• Debit cards are linked to your checking account. When you buy something the money is taken out

(debited) from your account.

• Debit cards may help reduce spending. Limited to the money in your account.

Downside to Debit Cards

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• Do not help you build or improve credit rating.

• Beware of overdraft fees.

• Protect your PIN!

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Pay Up!

• Calculate how long it will take to pay off credit cards. Visit Bankrate.com.

• Make a payment plan and stick to it!

• Try to pay the entire amount due each month by the due date.

• Pay more than the minimum payment amount.

• Pay higher-interest cards first; do not miss any payments on any card.

Get It On Credit!

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Compare $1,000 Credit Card Balance

Interest Rate

Minimum Payment

Calculated @

Minimum Monthly Payment

Months Total Interest

Paid

Total Payment

15% 2% $20 118 $851 $1,851

30% 3% $30 211 $3,089 $4,089

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Worth the Cost?

• Before you buy something on credit, ask yourself:

How much will it really cost? Can I actually afford it? Is it better to wait and pay in cash?

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Paying Late

• If you make a credit card payment late, your credit score will be negatively impacted.

• The interest rate you pay may increase sharply!

• And late fees may be added!!

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Why Should You CARE About Your Credit Score?

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Credit reports provide information regarding how you pay your bills.

Your Credit Report

Having no credit history can have adverse consequences.

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Credit Report

• 3 credit-reporting agencies Equifax Experian TransUnion

• Free credit report: AnnualCreditReport.com

• 80% of credit reports contain mistakes!

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• Auto loans.

• Leases.

• Mortgages.

Your Credit History

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Your Credit (FICO) Score

• A 3-digit number between 300 & 850. The higher, the better!

• FICO scores are not part of your credit report. You must pay a fee. To obtain your scores, visit www.myfico.com.

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Student Loans

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Student Loan Traps

Student Loans• Second largest source of

debt for American households.

• Average student graduates with a $25,000 loan balance.

• More student loan debt than credit debt.

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Monthly Cost of Student Loans

Loan Amount

Interest Rate

Repayment Plan (Years)

Monthly Payment

Total

10 $288 $34,524

$25,000 6.8% 20 $191 $45,802

30 $163 $58,674

10 $1,472 $176,620

$120,000 8.25% 20 $1,022 $245,394

30 $902 $324,547

Shop Around

• Search for the best interest rate/terms. Your school’s financial aid package is not

always the best option. Consider fixed versus variable interest rates. Subsidized versus unsubsidized loans.

• Choose public, not private loans.

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Student Loan Laws

• College Cost Reduction and Access Act (2007). After 10 years of public service, some federal student

loan balance forgiveness.

• College Cost Reduction and Access Act (2010). Reduces payment amount to a percentage of income.

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Manage Student Loan Debt• Keep track of what you owe and changes in terms.• Pay the interest during school.• Use only for ‘needs’.

Tuition. Do not use your student loans for ‘wants’.

Spring break!

• Pay off higher interest loans first.

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Ways to Reduce Costs

• Search for grants or scholarships.

• Get a job on campus or live at home.

• Consider lower cost options. Community colleges; or State universities.

• Try to graduate early if possible.

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Bankruptcy

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Consequences of Not Paying

• Collection phone calls.

• Late fees, over-limit fees, interest compounded.

• Psychological consequences.

• Damage to your credit score; increases future borrowing costs.

• Bankruptcy.

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Bankruptcy

• Bankruptcy provides a “fresh start”. Requires truthful, accurate information about assets. May require repayment of a percentage of debt.

• Stigma: You have not used credit properly.

• Stays on your credit record for years.

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Types of Bankruptcy

• Chapter 7 – Property is sold by a trustee to pay debts. Some old debts are ‘discharged’ or written off. Student loan debt is not dischargeable!

• Chapter 13 – A person with regular income can keep property and pay debts over time. 3 to 5 years.

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CARE Program

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• Consumerism – Wants v. Needs

• Budgeting, Saving and Investing

• Credit Cards

• Why Should You CARE About Your Credit Score?

• Student Loans

• Bankruptcy

Credit Abuse Resistance Education Program

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U.S. Bankruptcy Court – Southern District of CA

www.casb.uscourts.gov/CARE