ACCREDITED FINANCIAL COUNSELOR REVIEW COURSE Designed for Cities for Financial Empowerment Counselors Course Taught by: Dr. Mary Bell Carlson, Ph.D., AFC, CFP
Unit 7 Study Guide Unit 7 Surviving Debt Chapter 3 Personal Finance review Chapter 6 Unit 8 Study Guide Unit 8 Surviving Debt Chapters 1, 7, 8, 9, 14, 15, 16, 17, 19, 21 Personal Finance review Chapter 6
UNIT 7 Credit Reports and Scores
Counselor Competencies List the information that is included in a credit report. Describe how to build, maintain, or rebuild a strong credit report. Explain how to address a credit report error. Summarize how to obtain and monitor a credit report. List the factors that affect credit scores. Summarize how to obtain and monitor a credit score.
Overview Credit Reports Credit Scores
Credit Reports What is a credit report? A record of a person s dealings with debt Credit Bureaus Only collect information Sell information to lenders Regulated by the Fair Credit Reporting Act Experian, Equifax, TransUnion
Credit Reports What is included Personal Information Account Information Public Record Information Inquiries
Credit Reports What to Look For Negative Items Mistakes Fraud
Credit Reports Free Report www.annualcreditreport.com Denied Credit
Credit Reports Who Has Access Creditors Employers Government Agencies Insurance Companies Landlords
Credit Score Definition a statistical measure used to rate applicants based on various factors of creditworthiness Importance How to get one
Credit Score Factors Payment History (35%) Amount of Used Available Credit (30%) Length of Credit History (15%) New Credit (10%) Types of Credit (10%)
Favorite Counselor Skills Effectively help clients understand credit reports Teach clients how to build or maintain a good credit report
UNIT 8 Over Indebtedness
Counselor Competencies Describe signs of overindebtedness. Describe how to set a reasonable debt limit. Summarize strategies to reduce debt. Discuss consequences of default. Explain methods of restructuring debt.
Overview Overindebtedness Consequences Reducing Debt
Overindebtedness Signs 1. Exceeding limits 2. Not knowing how much you owe 3. Running out of money 4. Paying only minimum amount 5. Requesting new credit and higher limits 6. Paying late or skipping payments 7. Taking add-on loans (aka flipping) 8. Using debt-consolidation loans 9. Experiencing garnishments 10. Experiencing repossessions or foreclosures
Overindebtedness How to Set Debt Limits? Mary s Tip: Set limits within the budget: - Housing < 26% - Utilities between 5 10% - Savings > 10% - Transportation <10% - Debt Expenses < 10% - Food between 9 14% - Everything else <20% - Total = 100%
Overindebtedness Terms Statute of Limitations - a rule that sets a time limit within which a creditor may sue you for payment of a debt. The length of time that a creditor has to sue you on an unpaid debt varies from state to state. In some states, it's four years. In other states, it might be longer. Cooling-off Period - an interval after a sales contract is agreed upon during which the purchaser can decide to cancel without loss. Seller must tell you your rights to cancelling a contract. Cease Letter first step to asking a creditor or collector to stop an illegal activity or harassment. Examples of cease letters can be found at Consumerfinance.gov http://www.consumerfinance.gov/askcfpb/1695/ive-been-contacted-debtcollector-how-do-i-reply.html
Consequences Prioritizing High Priority Low Priority
Consequences Consequences of Default Repossession Self-help - Self-help repossession is simply repossession of collateral based on terms of a contract rather than a court order Reinstatement you get the loan current by making up all of the past due payments, including applicable fees and late charges, in one lump sum. Redeem - if you pay the entire outstanding balance due on the car loan, you can get the car back. The balance you would need to pay to redeem the vehicle may include extra fees and charges (including repo and storage fees and even attorney fees). Deficiency balance - the remaining amount that is due and owing a lender after the collateral (real estate or personal property) securing a loan is sold for less than the outstanding balance of the loan.
Consequences Consequences of Default, con t. Garnishment - a court order directing that money or property of a third party (usually wages paid by an employer) be seized to satisfy a debt owed by a debtor to a plaintiff creditor. Bank Setoff where the bank can removes money from the debtor s bank account to cover a missed payment on a loan owed to that institution. Assignment Order - court order that requires a debtor to assign certain rights to the creditor.
Consequences Judgments Basic - an official result of a lawsuit in court. In debt collection lawsuits, the judge may award the creditor or debt collector a judgment against you. Summary - a means by which the creditor can obtain a judgment against you without having to go to trial. Default - If you do not file an answer to the complaint within the response period, you lose the right to challenge the creditor's lawsuit. With a judgement, creditors can: garnish or attach your wages attach your bank account Execute against personal property, or file a lien against your real estate.
Consequences Liens Judgment Property Tax - property that has a lien attached to it cannot be sold or refinanced until the taxes are paid and the lien is removed. IRS - the government's legal claim against your property when you neglect or fail to pay a tax debt. The lien protects the government's interest in all your property, including real estate, personal property and financial assets. Mechanic s - a security interest in the title to property for the benefit of those who have supplied labor or materials that improve the property. The lien exists for both real property and personal property.
Reducing Debt Steps to Reduce Excessive Debt 1. Determine who and what is owed 2. Focus budget on debt reduction 3. Contact creditors 4. Take on no new debt 5. Refinance when appropriate 6. Avoid bad help 7. Find good help 8. Make power payments www.powerpay.org
Reducing Debt Restructuring Debt Consolidate Refinance Negotiate Better Terms File for Bankruptcy
Reducing Debt Power Payments Uses the same amount of total monthly debt payments Greatly reduces the interest paid Reduces amount of time to pay off debt Take on no new debt Use program at https://powerpay.org Can be very motivating
Favorite Counselor Skills Evaluate clients debt levels Help clients set debt limits Help clients prioritize debt if needed Run PowerPay for clients
FOR NEXT WEEK Personal Finance: Ch. 7 Surviving Debt: Ch. 5, 18, 20