ARE YOU PREPARED TO MEET THE REAL WORLD?

© 2008 Financial Health Counseling Services, Inc.

Are YOU prepared to Are YOU prepared to Meet the Real World?Meet the Real World?

© 2008 Financial Health Counseling Services, Inc.

Prepared by: Diane R. SchmidtCertified Financial Health Counselor

www.fhcsi.info

[email protected]

Challenges - Solutions - Independence© 2008 Financial Health Counseling Services, Inc.

What is the world YOU imagine after graduation?• Continue with a higher level of education

• Start of a new and exciting career

• Finding your “first” apartment

• Purchasing that “shiny new car”

• Independence

• Travel

• Marriage


Could you ever imagine?

• Having more than $2,000.00 owed on one or more credit cards

• Having student loans that will take 30 years to pay off

• Beginning your new career with poor credit

• Filing bankruptcy before the age of 25


Scary Statistics

• 25% of college students graduate with an average of $2169.00 in credit card debt

• 10% of all students will graduate with credit card debt in excess of $10,000.00

Source: Joint survey between TrueCredit.com and Zogby International Aug. 2008


Scary Statistics

• 76% of undergraduates have credit cards

• College students will amass almost $20,000 in student loan debt

Source: Nellie Mae, “Undergraduate Students and Credit Cards in 2004. An Analysis of Usage Rates and Trends


Scary Statistics

• Nearly one in five 18 to 24 year olds’ is in “debt hardship”, up from 12 percent in 1989

• Average credit card debt has increased 47 percent between 1989 to 2004 for 25 to 34 year olds

Source: Demos.org. “The Economic Status of Young America.” May 2008


You are entering the World with Diploma in hand!

But how prepared are YOU to survive in

today’s complex financial world?


Survival depends on being Financially Healthy

• What is being Financially Healthy?

• How can I attain Financial Health?


How do I know if I am Financially Healthy?

• I balance my check book EVERY month

• I maintain a good credit rating

• I have established short and long term financial goals

• I have adequate savings for retirement and emergencies

• I have an established spending plan


How do I know if I am Financially Healthy

• I maintain adequate insurance

• I have adequate cash flow to meet everyday expenses

• I thoroughly understand the terms of my credit

• I understand my consumer rights in billing, reporting and collecting the debts I owe


Balance my Checkbook?

• Do you understand how to balance a check book?

• Do you balance your check book monthly?

• How do you know the exact amount you have in your check book at any one time?

• What maintenance fees do you pay on your account?

• What are compensating balances?



• Do you utilize a debit card for purchases?• Why would you CHARGE with your debit card?• Do you RECORD every debit transaction?• How many times a week/month do you withdraw

money with your debit card?• Do you use your bank for debit withdrawals?• How much a month do you pay in bank fees for

ATM usage



• Why do we balance our checkbook?

• Why is it good to keep our checkbook updated?

• What might happen if we don't keep our checkbook balanced?


You must know where you are, to get where you want to go

• Have you established your short and long term goals?

• Without goals, you will wander aimlessly. You MUST have something to work toward.


Goals? Where do I begin?Know and Understand the Difference

NEEDS• Adequate housing• Reliable vehicle• Food and clothing

WANTS• New loaded vehicle• New house• Dining Out• Designer clothes• Latest electronics• Elaborate vacations• Daily Latte’• Gold watch


Needs v Wants• Any want can become a need if you don’t

perform a “head check”. You must understand your expectations.

• Destructive financial behaviors are driven by our subconscious expectations, attitudes and beliefs about money– What do you expect to earn?– What type of vehicle do you expect to drive?– What type of home do you expect to live in?– Where (city) do you expect to live?


Destructive Financial Behaviors?

• In order to reach your financial goals, you must understand if your spending personality is costing you hundreds or even thousands of dollars a year?

• Take the Spending Personality Assessment. Each of these spending personalities can derail your financial health.


Destructive Financial Behaviors?• Fanatical Shopper - Obsession with getting the

lowest price. Spend excessive time and expense to get the lowest price - at what cost?

• Impulsive Buyer - Lack control and do not plan before shopping. Point of sale purchases.

• Passive Buyer - Easily persuaded to buy items they may not really want or need

• Ulterior Motive Spender - Uses shopping as a means to escape or deal with stress. Use as a revenge tactic against another

• The Esteem Spender - “Keep up with the Joneses”

• Source: National Association of Certified Credit Counselors


Destructive Financial Behaviors?

• Honesty with yourself is the beginning.

• Once you have confronted and accepted that this behavior exists, you can determine what small changes you can make in the name of Positive Financial Health.


Needs v Wants

• Now that you understand your needs versus your wants and where your potential spending gaps exist, it is time to establish your short and long term goals.

Short term goals - 1 year or lessIntermediate goals - 5 yearsLong term goals - 10+ years

• You are never too young to begin planning


What makes a good goal?

In order for you to achieve your goals, they

MUST be

SPECIFIC, MEASURABLE and VIABLE



• The more realistic your goals, the better opportunity you have for success.

• When goals are: • Specific - you can establish your roadmap to reach

stated goal.• Measurable - you can determine your success rate at

various points in time.• Viable - Is the stated goal realistic enough to attain.Don’t set yourself up for failure. The mind is a powerfulthing. You can accomplish any task if you “believe” you

can get there.



Goal #1: I want to be Rich and Famous.

Goal #2: By the time I am 30, I want to have $10,000.00 in the bank

Goal #3: I have $35,000.00 in student loans that I intend to have paid off by the time I’m 30

Goal #4: I am going to buy a house


What makes a good goal?Goal #1: I want to be Rich and Famous. To be

measurable, you must define rich. Wealth does not have to be measured in dollars. Is it viable that you will become famous?

Goal #2: By the time I am 30, I want to have $10,000.00 in the bank. While this goal is both measurable and specific, have you defined how it will be viable.

Goal #3: I have $35,000.00 in student loans that I intend to have paid off by 30. Both specific and measurable, is it a viable goal.

Goal #4: I am going to buy a house. Buying a home is specific, but the path to being viable in not considered in the goal.


Needs vs. Wants

Now that you know where you want to go -

HOW DO YOU GET THERE?


Have you considered a Spending Plan?

• Do you currently use a budget or spending plan?

• What are your feelings about budgeting?

• What is keeping you from starting a spending plan?

• What has kept you from sticking to a budget or spending plan in the past?


How to I start my spending plan?

• Before an accurate spending plan can be established, facts must be gathered

• If you are not aware of your spending habits, you can not have a realistic plan

• Commit 2 weeks to tracking EVERY purchase, including a pack of gum


How to I start my spending plan?

• For every purchase made, ask for a receipt. Place it in an envelope.

• At the end of the 2 weeks, review all the receipts.

• Decide what changes you can immediately implement to reduce monthly spending.


Begin your Spending Plan

Before a realistic spending plan can be established, you must know where your money is spent.


Begin your Spending Plan

Before a realistic spending plan can be established, you must know where your money is spent.

a. CLOTHING a. New Clo thes b. Dry Cleaning c. Other

b. FOOD

a. Groceries b. Eat ing Out c. Childr en’s schoo l mo ney d. Other

c. AUTO/T RANSPORTATION

a. Publ ic Transit b. Car loan / lease c. Car Insurance d. Maintenance e. Parking f. Gas g. Car Washes h. Other

d. LOANS/ LINES OF CREDIT

a. Credi t Card s b. Home Equit y Loans/ Lines c. Personal Loans/ Lines d. Educati on Lo ans e. Other

e. ENTERTAINMENT a. Movies b. Vacat ion c. Parti es d. Hobbies e. Other

f. MISCELLANIOUS

a. Gifts b. Subscripti ons c. Dona t ions


What is a Spending Plan?


All spending plans should include a savings item. Without an emergency savings account, any unexpected financial hardship can derail your financial health.The percentages shown are recommended limitations on monthly spending for each category

More on Spending Plans


More on Spending Plans

• Convenience carries a price.• Proper meal planning for lunch and dinner

can save thousands per year• U.S. consumers racked up approx $51

billion in fast food purchases on credit and debit cards in 2006. Up from $33.2 billion one year earlier

Source: CardData.com


Convenience Spending v Planning

• Fast Food Hamburger $3.30

• 1 lb. of ham $5.99

• 1 loaf of bread $2.69

• Several lunches $8.68


Dining Out v Cooking at Home

Chain Restaurant• 9 oz House Sirloin $12.99

(w/ vegetable or baked potato)

Home• 1 lb (16 oz) sirloin $5.99• 1 lb broccoli $1.59

$7.58


Dining Out v Cooking at Home

Chain Restaurant• 10 oz Sirloin Burger $9.99

Home• 1 lb - 90% lean gr. beef (on sale) $4.49• 8 hamburger buns .99

$5.48


Types of Credit

• Secured credit-loans backed with collateral such as home or car

• Unsecured credit-not backed with collateral like a student loan

• Installment credit-repaid in equal monthly installments over a period of time

• Non-installment credit-repaid in one installment by the due date. Any bill that states “Payment due in full upon receipt of this bill” such as a utility bill


Types of Credit Cards Available to Consumers• Bank Cards - Visa, MasterCard or Discover• Travel and Entertainment Cards - American

Express and Diners Club• Merchant Cards - Major department stores, oil

companies and airline cards• Secured Credit Cards - Generally smaller credit

limits ($500 - $1,000), as the consumer is required to deposit with the issuing lender an equal dollar amount. Used to establish credit or repair a bad credit rating


DO YOU HAVE A CREDIT CARD?

• What types of purchases do you make with your credit card?

• Do you make more than the minimum monthly payment?

• What is your current balance?

• Is your balance at/near your credit limit?

• How many credit cards do you have?

• How many carry balances?


Do I understand my current consumer credit?• What is my grace period?

• What is my A.P.R?

• What does A.P.R. mean?

• How is the interest calculated?

• How are my payments applied with the 0% balance transfer offers?


Do I understand my current consumer credit?• What types of fees does my card carry?

– Annual Fee– Over the Limit Fee - Ability to Opt Out– Late Payment Fee– Balance Transfer– Cash Advance Fee– Bounced Check Fee– Pay by Phone Fees– Default rate– What is the effect of Opting Out


Do I understand my current consumer credit?• Credit card offers to be wary of unless

used with discipline– Low Introductory Interest Rate– Short Grace Periods– Convenience Checks– Balance Transfer Options


Credit CARD Act of 2009

• Signed into Law on May 22, 2009

• Designed to protect consumers from some practices of credit card companies

• Your protection comes from understanding the new law


August 20, 2009 changes

• More advanced notice of rate hikes• 45 day notice of rate changes, fee changes and

finance charge increases• More time to pay• Statements need to be sent 21 days before due

date. Prior to law change 14 day notice required• Due date falls on a holiday or weekend -

payments can be applied first business day after without penalty


February 22, 2010 changesFebruary 22, 2010 changes


Retroactive rate increases• Issuers can not raise rates on existing balances

unless cardholder is 60 days or more past due• Universal Default is banned - practice of raising rates

because cardholder is late on another credit card• Rates can not be raised in the first year after issue.• Teaser rates must remain in effect for 6 months• What the provision does not do: • If an issuer provides a 45-day notice, the

provision does not prevent the raising of rates on new balances at any time for any reason


Fee Restrictions• Over Limit Fee - Only one over limit fee per billing cycle.

Customers must give permission to credit issuers to accept charges over the credit limit. If the customer OPTS OUT, the credit company can REJECT charges

• Credit issuers not permitted to charge a fee to customers who elect to pay their bill on-line or by telephone. However, a fee can be charged to expedite a payment

• If the cardholder pays at a local branch, the payments must be credited on that day

• For sub-prime-rate cards, in the first year, non-penalty fees can not take up more than 25% of the initial credit line. This does not include late, over limit or NSF fees


Ends double-cycle billing

• Bans double cycle billing - often referred to as the two-cycle average daily balance computation method. This practice allowed finance charges on both the current and the previous balance


Restriction to Students• People under 21 will be protected from pre-screened

credit card offers unless they opt-in for the offer• Credit issuers and universities must disclose the

agreements with respect to the marketing or distribution of credit cards to students and limit the number of companies permitted to solicit students

• Credit cards can not be issued to people under the age of 21 without demonstrating adequate proof of income or having an adult co-signor

• College students will be required to received permission from adult co-signor to increase the credit line they hold jointly


Enhanced Consumer Disclosure• Clear disclosure of how long it would take to pay off a

credit card balance if the cardholder only makes the minimum payment each month

• Clear disclosure of the total cost of interest if a cardholder makes only the minimum payment each month

• Penalty Interest - rate increase potential if the cardholder misses one or more payments

• Late payment deadline and postmark date to be clearly shown and disclosed

• Right to Opt Out of rate and fee changes• Disclosure must be posted on-line


Ability to Repay• Can’t open a new credit card or increase

the line on a existing credit card without showing the ability to repay.

• Ability to repay will be based on income and assets of applicant

• Based on whether the card holder is “maxed out” on other credit cards and making only the minimum payments


Right to “Opt-Out”

• If the cardholder elects to “opt-out” of new rate and fees when disclosed, the consumer can no longer make new purchases with the card. Effectively, the card is closed by the issuer

• Old lower rate is applied while the consumer pays off the existing balance

• Must be advised of the option to opt-out when the 45 day notice of change in terms is sent


Right to Opt-Out

• CANNOT Opt-Out of minimum payment increases

• CANNOT Opt-Out of APR increases if cardholder is 60 days or more past due


Right to Opt-Out• If the cardholder exercises their right to Opt Out

and the account is closed by the issuer, there are 3 methods of repaying the old debt:

Collect the balance over 5 years

Charge minimum payment amount that is up to twice the payment percentage charged before the term changes

Apply the same repayment plan used at the time the consumer rejected the change in terms


Fairer Payment Allocation

• Payments made over the minimum balance due will automatically be applied to the debt with the highest interest rate first, instead of the last debt transferred or charged.

Hint: If accepting a teaser rate card with the intent to balance transfer from a higher rate card, do not charge on this account. The teaser rate will only be applied to the amount transferred in the final 2 months of the introductory rate period


Free Credit Report offers• Must include statement the consumer is

entitled to one free credit report each year from each credit bureau

• The advertisement must also state the official site for obtaining the free report is www.annualcreditreport.com

• Radio and TV must include the statement this is not the official site to obtain the free credit report permitted under federal law


August 22, 2010 changes


Retroactive Rate Increases

• If the cardholder triggers the default rate due to a 60 day delinquency, the bank must restore the lower rate once the cardholder makes 6 consecutive on-time payments

Hint: Keep track of the on-time payments to ensure the lower rate is restored


Gift Card Protection

• Prohibits expiration for the first 5 years• No longer assess inactivity fees unless the card

has not been used for 12 months• Prohibits service charges• What the provision DOES NOT do:

There is no 5 year guarantee if the company goes out of business

• This provision excludes prepaid phone cards, reloadable cards, award cards


What is the purpose of Schumer Box?


EXAMPLE OF SCHUMER BOXEXAMPLE OF SCHUMER BOX


Using Credit Wisely

• Access to credit is a privilege, not a right.

• In order to maintain a good credit rating, a complete understanding of credit is an absolute.

• The real power of credit comes with the understanding that having credit is an opportunity to build the ability to receive new and better credit in the future.


Using Credit Wisely

What is a FICO score? (developed by Fair Isaac Co) A three digit number ranging from 400 to 850. The higher the number, the lower the credit risk.Currently, FICO scores provide the best guide to future risk based soley

on credit report data.

Enables lenders to make credit decisions through the use of “artificial intelligence”. Utilizing technology, lenders can remove human involvement in the credit decision process and interest rate assignment, based on credit scores.


Using Credit Wisely

• Three Major Credit Repositories– Transunion– Equifax– Experian

• Each repository will have a different credit score• Obtaining your FREE annual credit report from

each repository: www.annualcreditreport.com• Do NOT request credit scores as you must pay

for them. Additionally, a lending institution will get different scores based on their filters.


Using Credit Wisely

• Why do I want to obtain my credit report?– Review for errors– Review for identity theft– Review for filed collections or judgments– Make sure accounts that you have voluntarily closed

report as “Closed by card holder” • What if I find errors?• Immediately select the link to the actual

repository website. Complete an online dispute form. The repository has 30 days to investigate the dispute with the credit grantor. If found to be in error, it must be removed from your file.


Using Credit Wisely

• A FICO score is generated only when a request for a credit report is received

• How is my FICO score computed?– 35% = Credit Payment History– 30% = Outstanding Debt– 15% = Length of Credit History– 20% = Credit Mix & New Credit


Using Credit Wisely

Primary reasons to maintain high FICO scores• Interest rates for new credit are based on current

FICO scores– Credit cards– Car Loans– Mortgage Loans (see next slide)

• Employers are accessing credit reports in the hiring process.

• Insurance rates are based on credit reports• Landlords will obtain your credit report


Using Credit Wisely

Primary reasons to maintain high FICO scores• Negative information will remain on your credit

report for 7 to 10 years• One late payment or collection recently reported

to the credit bureau can have a serious and immediate impact on your scores– Consequently:

• It takes a greater amount of time and commitment to future use of credit to raise your score


Why is the interest rate important?

Compare the difference in interest paid on these 2 mortgages

• Credit score 740• Mortgage rate

6.625% 30 year fixed• Monthly Principal &

Interest payment $640.00

• Total interest paid $130,400.00

• Credit score 620• Mortgage rate 8.00%

30 year fixed• Monthly Principal &

Interest payment $734.00

• Total interest paid $164,240.00


Using Credit WiselyMarketing credit card offers to the consumer is BIG business.

To protect yourself from unsolicited credit card offers, call:

888-5-OPTOUT

888-567-8688 OR

www.optoutprescreen.com

A statement will be put in your credit file so when a credit card company purchases a mailing list from the repository or a reporting agency, your credit will be excluded from the solicitation offer.


Using Credit Wisely

• It is also possible to OPT OUT of unsolicited “convenience” checks. Contact your credit card customer service department

• Stops impulse spending - they are called “CONVENIENCE” checks for a reason

• Reduces possibility of fraudulent use


Using Credit Wisely

10 Top Reasons for low Credit scores as shown on your credit report

• Serious delinquency

• Serious delinquency and public record or collection filed

• Derogatory public record or collection filed

• Time since delinquency is too recent

• Level of delinquency on accounts


Using Credit Wisely

10 Top Reasons for low Credit scores as shown on your credit report (cont’d)

• Number of accounts with delinquency• Amount owed on accounts• Proportion of balances to credit limits on

revolving accounts is too high• Length of time accounts have been

established• Too many accounts with balances


How do I maintain a good credit rating or FICO score?• Make all payments on time• Maintain a low utilization ratio?• Do not close old accounts unless they

carry annual fees • Obtain mixed forms of credit• Limit new accounts in a short time period• Limit inquiries

Refer to slide 28 about how FICO scores are calculated


Utilization Ratio

• The ratio of the current balance compared to the credit limit or most charged. Different lenders have different practices

• A utilization ratio in excess of approximately 30% negatively affects credit scores

• If you have a credit card with a $5000 credit limit, what is the maximum your balance could be without affecting credit score?


How do I maintain a good credit rating or FICO score?

• Credit cards should never be used for luxury purchases

• Understand Needs v Wants• Pay more than the Minimum Monthly

Payment• Don’t exceed your credit limit• Avoid Convenience Checks• Be a good Money Manager


What makes a good Money Manager?• Avoid using credit card for impulse

purchases• Review your bill for unknown charges• Avoid using credit cards for late night

snacks or dining out• Don’t charge your “spring break” or other

vacations on your credit card• Pay more than the minimum monthly

payment


What makes a good Money Manager?

• Things to look at on your monthly billing statement– Unknown charges*– Interest rate - credit card companies can

raise your rate without notice**– Fees charged

*Under the Fair Credit Billing Act, the consumer has 60 days to dispute in writing an unknown charge.

The creditor has 30 days to investigate the dispute and respond**Changed with CARD Act of 2009


What makes a good Money Manager?

• UNDERSTAND: If you approach credit card usage with the commitment that the balance will be paid in full when the bill is due, you will control your spending and maintain a good credit rating


What makes a good Manager?

• Why should I pay more than the minimum monthly payment?– Balance on Card - $2,000.00– Interest Rate 18%APR = 1.5% monthly rate– $2,000.00 X 1.5% = $30.00– Minimum monthly payment = $42.00 – New balance after payment made = $1988.00

(assumes no additional charges or fees)


What makes a good Manager?

DOES THIS SCARE YOU?

If you leave college with $10,000.00 on a credit card and never make another charge, you will be nearing retirement before the debt is paid in full. This is the reality of making only the minimum monthly payment.


What makes a good Money Manager?• Maintain excellent financial records• Invest in a shredder to dispose of expired

financial records, bill receipts, pre-approved credit offers and convenience checks

• Pay your self first - payroll savings deposit can easily satisfy your spend plan requirement

• DO NOT make financial decisions if you don’t fully understand the terms - ask questions Lack of knowledge can cost you thousands

• Conduct research on the internet


If I think I am in trouble or heading there:STOP CHARGING!!!!• Talk to your creditor - let them know you are

experiencing difficulty • Request your interest rate be reduced or the

fees be waived. Fees can make your balance skyrocket

• Anything a debt relief company can do for you, you can do for yourself

• Know your rights regarding how your debts can be collected


If I think I am in trouble or heading there

• Speak to a reputable credit counselor• If you honestly owe a debt, no one can make it go away.

NEGOTIATE with your creditor• Know the statue of limitations on “old” debt• When pay-off of a debt is negotiated for less than the

amount due, the creditor can legally send you a 1099• IF bankruptcy is the only option, Student loans together

with certain other debts may not be dischargeable in a bankruptcy. So explore every option first. This will remain on your credit for 10 years and may not lighten for financial burden


What if I am forced to file bankruptcy?

• Maintain your payments where possible before the bankruptcy action is filed

• After the bankruptcy is discharged, obtain a copy of your credit reports. Many creditor do not report that the balance is zero and the debt was charged off in bankruptcy

• As long as the accounts show a balance, your FICO scores will not improve with any new credit you obtain


Remember these Simple Rules of ThumbIf someone is attempting to sell you a financial

product, and they don’t allow you time to research the product they are selling . . . RUN AND RUN FAST

If something sounds too good to be true . . . IT GENERALLY IS!

SHOP and COMPARE!

There is NO FREE LUNCH! Everything has a price


QUESTIONS?

Documents

ARE YOU PREPARED TO MEET THE REAL WORLD?