CHAPTER 19 LESSON 1 SOLVING CREDIT PROBLEMS CREDIT

CHAPTER 19, LESSON 1 SOLVING CREDIT PROBLEMS

CREDIT MANAGEMENT • A big disadvantage of credit is that it can lead to overspending. • Credit trouble is not isolated to one group of people – it is diverse. • Problems with credit usually arise over time, in part due to: – Poor planning – Impulse buying – Careless budgeting • Good credit management results in using credit wisely for your individual situation.

20/10 RULE • Credit counselors recommend consumers follow the 20/10 Rule. – Limit the use of credit to no more than 20% of your yearly take-home pay – Limit payments to being no more than 10% of your monthly takehome pay • Mortgage loans are not included in these limits

DANGER SIGNS FOR CREDIT TROUBLE • Warning signs that you are overextending your credit include: – You pay for everything with credit. – Your payments are often late, or at the very least made at the end of the grace period. – You pay off credit cards by moving the balance to another account. – You worry about how you pay your bills. – If an emergency arises, you will not be able to take care of it. – Your credit cards are all near their limit. – The credit card companies have raised your interest rates because of late payments and charges for exceeding your credit limit. – You must time your payments carefully in order to pay your bills. – You skip some payments to make payments on other accounts.

CREDIT PAYMENT PLAN: ACTIVITY • By prioritizing debt, you can make payments on a schedule to pay them off faster. • Start with your highest interest rates first. • Make minimum payments on all other accounts. • As your balances decrease and go away, continue to “snowball” your payments to get out of debt.

SOURCES OF CREDIT ADVICE • Credit Counseling – Service to help consumers manage their debt and credit more wisely • Online Credit Advice – Reliable sources can provide consumer information to help you make wise choices • Debt Negotiation – You hire a company to call your creditors and negotiate reductions in what you owe – Can be expensive

SOURCES OF CREDIT ADVICE, CONTINUED • Debt Adjustment – Formal process of taking over your debt situation for a period of time, after which you will be debt free – Debt adjustment service plan: • A finance company takes over your checkbook, paycheck, and bills • You have almost no control over your finances at this point, except for a small spending allowance – Debt consolidation loan: • A finance company loans you money to pay off your debt • You then make a monthly payment to your finance company • Credit Repair – The (slow) process of reestablishing good credit by responsibly managing credit

CREDIT SCAMS • Beware of companies that: – Promise “instant” relief – Make promises and guarantees – Do not inform you of your legal rights – Charge large upfront fees – Use (900) phone numbers