Week 3 Debt & Credit. Lee s Summit Baptist Temple

Transcription

1 Week 3 Debt & Credit Lee s Summit Baptist Temple

2 Love not the world, neither the things that are in the world. If any man love the world, the love of the Father is not in him. For all that is in the world, the lust of the flesh, and the lust of the eyes, and the pride of life, is not of the Father, but is of the world. I John 2:15-16

3 It is human nature to want it and want it now; it is also a sign of immaturity. Being willing to delay pleasure for a greater result is a sign of maturity. Dave Ramsey

4 The rich ruleth over the poor, and the borrower is servant to the lender. Proverbs 22:7

5 Dave Ramsey s Baby Steps 1. Start an emergency fund ($1,000) 2. Begin to Pay-off Debt (except mortgages) 3. Complete the emergency fund (Three to six months expenses) 4. Fully fund 15% into pre-tax retirement plans and ROTH IRA, if eligible. 5. College Funding 6. Pay off Home Early 7. Build Wealth

6 Credit Card Statistics 80% of graduating college seniors have credit-card debt before they even have a job!

7 Credit Card Facts Lee s Summit Tribune June 7, 2006 Plastic High: New Addiction for Teens? Credit Cards

8 Credit Facts Sears now makes more money on credit than on the sale of merchandise. However, in 1910 the Sears catalog stated, Buying on Credit Is Folly.

9 Credit Card Facts Paying the minimum at a conservative interest rate of 13% $5, years $10, years You end up paying approx. double

10 Credit Card Facts Paying the minimum at a conservative delinquency interest rate of 26% $5, years $10, years You end up paying approx. triple

11 Credit Card Facts To do your own credit card payment calculations visit: The calculator section of the Credit Card Page on: bankrate.com

12 Calculating Credit Card Interest Most companies take an average daily balance (including new purchases) times the daily periodic interest rate to calculate the finance charge This means you also pay interest on all the purchases you paid in full the same month in which you made the purchase.

13 Calculating Credit Card Interest Example in Feb. (28 days) at 20% Interest: When you get your $1, January credit card bill, you pay all in full except $100.00

14 Calculating Credit Card Interest Scenario # 1 February Credit Card Statement Balance Not Paid in January = $100 Feb. 1 Charge = $250 Feb. 8 Charge = $250 Feb. 15 Charge = $250 Feb. 22 Charge = $250 Finance Charges on Avg. Daily Bal. = $40

15 Calculating Credit Card Interest Scenario # 1 If you wait one year to pay off the $100 while charging $250 each week and paying it off every month, you will end up paying over $516 in finance charges. That is over 516% interest.

16 Calculating Credit Card Interest Scenario # 2 February Credit Card Statement Balance Not Paid in January = $25 Feb. 1 Charge = $250 Feb. 8 Charge = $250 Feb. 15 Charge = $250 Feb. 22 Charge = $250 Finance Charges on Avg. Daily Bal. = $35

17 Calculating Credit Card Interest Scenario # 1 If you wait one year to pay off the $25 while charging $250 each week and paying it off every month, you will end up paying over $463 in finance charges. That is over 463% interest.

18 Credit Card Facts 60% of people with credit cards don t pay off their balance every month.

19 90 Days Same As Cash? 90 days is not the same as cash Cash will get you a better deal 88% of these contracts convert to debt at 24-38% interest.

20 Using Cash Carrying cash doesn t make you more likely to get robbed, but mismanaging credit cards will rob you every month.

21 Using Cash People who use credit cards instead of cash spend 12% more on general purchases and 54% more on food (eating out and groceries)

22 Are Credit Cards a Necessity in Today s Society?

23 Building Good Credit Statement: Credit Cards are not needed to build your credit. Resulting Question: So, how do I build credit to buy a house?

24 Building Good Credit Answer: Pay your landlord on time for 2 years. Stay in the same career for 2 years. Have a good down payment. Have no bad credit. Don t try to take too big of a home loan. (25% of take home pay is conservative)

25 National Rent-a-Car Debit Card Policy Important Policy Information: All rentals require a clean driving record. A major credit card or debit card and valid driver's license in the name of the renter will be required at the time of rental. Debit and check cards, considered to be any non-credit card bearing the Visa or MasterCard logo (except for gift/prepaid cards) may only be used in conjunction with proof of round trip ticket (airline, cruise ship and the like). Without proof of roundtrip ticket, debit or check cards are only accepted on return. Any other non-credit card without the Visa or MasterCard logo is not accepted. Customers planning to rent with cash must bring the following documentation to the rental counter: valid Driver's License, a return ticket from an airline, cruise ship or train, verifiable employment, verifiable home phone number or a current verifiable gas or electric bill with the renter's name and address. All documentation must be in the renter's name. A cash deposit will be required in addition to the cost of rental. A passport is required for all non-u.s. citizens.

26 Dollar Rent-a-Car Debit Card Policy Debit Card Usage: If you use a debit card at the beginning of rental to qualify to rent, it is the policy of DOLLAR to perform a credit inquiry on you. DOLLAR has contracted with Equifax Credit Information Services, Inc. to perform a CARcredit99Score. This type of inquiry is a credit evaluation service for the automobile financing and leasing industries. The credit inquiry is posted on the customer's credit report and may have an effect on the customer's credit evaluation. In the event that a customer's credit score does not meet the minimum required by DOLLAR Rent A Car, the customer will not be allowed to rent or provide another form of payment. DOLLAR's debit card policy complies with all applicable U.S. federal and state laws. Debit cards are accepted for payment at the end of rental without a credit inquiry. Debit cards may not be accepted in Canada. Because the credit requirements vary by DOLLAR location, please refer to the Local Policies for specific information on the acceptance and usage of debit cards where you intend to rent a DOLLAR vehicle.

27 Choosing a Credit Card Introductory Interest Rate on Balance Transfers (If Applicable) Introductory Interest Rate on Purchases Length of Introductory Rates Standard Interest Rate Default Interest Rate Variable or Fixed Interest Rate Annual Fee

28 Using Your Credit Card Anti-Fraud Measures Taken By Credit Card Companies Call your credit card company before making major purchases or traveling.

29 Closing Credit Card Accounts Know when the time is right. Closing zero balance credit card accounts can increase your debt-to-available credit ratio.

30 Paying Off Debt List all your debts smallest to largest. Payoff the smaller debts first in order to get some quick wins. Continue to pay the minimum payment on all debts except pay all you can on the smallest debt.

31 Paying Off Debt What if things are so tight, I can barely make the minimum payment? Have a Yard Sale Sell the boat or camper Sell other large items Work extra hours

32 How Not to Pay off Debt Cashing out your 401K Debt Consolidation Loans File for Bankruptcy

33 How Not to Pay off Debt Don t cash out your 401(k) early, you will be taxed 40% on the cash out. This is the equivalent to taking out a loan at 40%.

34 Credit card debt consolidation only treats the symptom. 78% of the time, the person s debt grows back.

35 Debt Management Companies Debt management companies may get you out of debt, but they trash your credit. It may appear just as bad as Chapter 13 Bankruptcy.

36 Types of Bankruptcy Chapter 7: Total bankruptcy which stays on your credit report for 10 years. Chapter 13: bankruptcy that is like a payment plan and stays on your credit report for 7 years.

37 Should I Sell my House to Get Out of Debt? Only if your payment is more than 45% of your take-home pay. If you payment is less than 45% of your take-home pay, use other means to attack your debt.

38 125% Home Loans Borrowing extra money on your home loan ties you down to that house. You can t sell your house if you owe more than it is worth.

39 Loaning out Money

40 Co-Signing A man of great wrath shall suffer punishment: for if thou deliver him, yet thou must do it again. Proverbs 19:19

41 Co-Signing A man void of understanding striketh hands, and becometh surety in the presence of his friend. Proverbs 17:18 Webster s 1828 Definition of Surety : Security against loss or damage; security for payment.

42 Co-Signing When you co-sign on a loan for somebody, it shows up as a debt on your credit.

43 Co-Signing It is better to have the actual borrower co-sign for you rather than you co-sign for them. This will mean that you get the statements and can easily see the status of the account.

44 The Friendly Loan When someone borrows money from a friend or family member, they become obligated to them as their lender; and if they can t repay them, their friendship will likely be destroyed.

45 Credit Reports and Scores The following website allows you to get a copy of your credit report free every year from all 3 credit reporting agencies Equifax TransUnion experian annualcreditreport.com

46 Credit Reports and Scores Late payments and collections generally stay on your credit report for seven years. Credit scores, for better or worse, remain separate after you are married.

47 Where to Go to Get a Loan Credit Unions are non-profit, which means their profits are put back into the company including lower interest rates on loans, higher interest rates on investments, lower fees, and more services.