Credit Next Steps Previous Lesson Assignment From Financial

Credit ~ Next Steps

Previous Lesson Assignment From Financial Empowerment Passport • • • Check credit score, evaluate progress Obtain second report from www. annualcreditreport. com Develop a debt snowball at www. powerpay. org Pay all monthly bills in full and on time Create a plan for windfalls Evaluate savings progress with coach Continue budgeting so that you can have three months of living on a budget prior to the end of the challenge Read Credit Resource Guide www. bankonhr. org Read Homework Notes below Reconcile bank statement Make contact with your coach

How’s It Going? Have you added to savings this month? Were you able to pay your expenses without depleting savings? Did you overcome a financial hurdle? Did you live on less than your income?

What Do You Know? Pre-Test from Participant’s Guide 1. Problems with predatory loans can include: (Select all that apply) a) High annual percentage rate (APR) b) High fees c) The need to pay off the loan in a short time period d) Puts the collateral (asset used to obtain the loan) at risk 2. Paying the minimum payment on a credit card every month will: a) pay a large percentage of the total balance owed every month b) mean that the final amount paid is much higher than the initial cost c) allow the cardholder to avoid paying any interest charges d) mean that the charge will be paid off in a decent amount of time 3. What sources for a loan tend to have lowest interest rates? a) Payday lender b) Cash- advance lender c) Credit Union or Bank d) Car Title lender

What Do You Know? Pre-Test from Participant’s Guide 4. Before accepting a loan you should: (Select all that apply). a) Consider whether the item is a need or a want b) Make sure you can afford the loan c) Check to make sure the loan provider is reputable d) Obtain loan quotes from other lenders then compare all terms and conditions 5. What is the most important step to paying off debt? a) Refinancing for a better interest rate b) Stop creating new debt c) Pay off debt before saving money d) Paying off the lowest balance first

What Do You Know? Pre-Test from Participant’s Guide 1. Problems with predatory loans can include: (Select all that apply) a) High annual percentage rate (APR) b) High fees c) The need to pay off the loan in a short time period d) Puts the collateral (asset used to obtain the loan) at risk 2. Paying the minimum payment on a credit card every month will: b) mean that the final amount paid is much higher than the initial cost 3. What sources for a loan tend to have lowest interest rates? c) Credit Union or Bank

What Do You Know? Pre-Test from Participant’s Guide 4. Before accepting a loan you should: (Select all that apply). a) Consider whether the item is a need or a want b) Make sure you can afford the loan c) Check to make sure the loan provider is reputable d) Obtain loan quotes from other lenders than compare all terms and conditions 5. What is the most important step to paying off debt? b) Stop creating new debt

Let’s Talk About You What has been your experience with debt? Do you know people who have gotten into trouble with debt? How do you guard against building credit card balances?

Credit Next Steps • • Making wise credit decisions Assessing cost of credit Finding funds when you need them Building credit Predatory lending traps Debt consolidation Getting help Pay Down Debt – Debt Snowball

Making Wise Credit Decisions • Is the item a want or a need? • If a need – What will you have to give up or put off by using credit to buy this now? – Can you wait to purchase the item until you have enough money saved? – Can you find the item for less? • Buy used (vehicle, furniture, clothing)

Assessing Cost of Credit: Truth in Lending What are the fees? What happens if the payments are late? What is the APR? What happens if the loan is not paid back in full? Is there a less expensive source? (example auto loan)

Sources for funds Savings Salary Advance Bank/Credit Union Refinance with creditor Social Service Agency 211 Virginia Relative, Friend, Religious institution Cash advance on credit card

Building Credit • Secured credit card – Money deposited in your account becomes the credit line for your credit card • Credit Builder account – Regular monthly deposits are treated as payments on a line of credit and reported to the credit reporting agencies • Authorized user on credit card – Your name is added to someone else’s credit card • Cosigner on your loan – The cosigner is obligated if the loan is not paid

What is Predatory Lending? Preys on ncome -i r e w o l Targets norities & mi the vuln erable Deceptive Fraudulent wreaks ha voc Hig t s o hc

Predatory Loans Payday Loans Car Title Loans Tax Refund Anticipation Loans Rent-to-Own Contracts Cash-Advance Loan Pawn Loan Buy Here/Pay Here

. Fees $15 for each $100 borrowed 360% APR Payday Loan Postdated personal check Automatic withdrawal Small cash advances $500 maximum Must payback in 2 pay cycles

. Cost: Up to 10% of your refund Fees may be hidden in other services Tax Refund Anticipat ion Loan No interest but high fees Short term cash advance until refund obtained Beats IRS efile refund by about 14 days

. Triple Digit APRs (>100%) $500 loan may become $625 Debt Car Title Loans Loan to value ratio 25%-50% Payment within 30 days Puts Vehicle at Risk

Other High Cost Sources Rent to Own Buy Here/Pay Here Pawn Loan Cash Advance

Debt Consolidation Options • Single loan to pay off all creditors • Secured Loan – Auto, Home equity loans or lines of credit. – Asset is at risk • Balance transfers to a zero-percent credit card – May have balance transfer fee – Low rate only lasts if you pay on time • Personal or equity loan from credit union or bank – May have origination fees

Debt Consolidation Options • Work with a non-profit credit counseling organization – Debt repayment plan – Small fee • Borrow money from a friend or family member – Puts relationship at risk – Potentially puts other persons finances at risk • Borrow from a retirement account : “last resort” – Lowers your retirement savings – May be penalty of 10% if less than 59½ years old

Debt Consolidation 70 percent of Americans who take out a home equity loan or other type of loan to pay off credit card debt end up with the same (if not higher) debt load within two years.

Getting Help • Credit Counselling – Choose a non profit, accredited agency – National Foundation for Credit Counselling www. nfcc. org Services offered – Provides one-on-one counseling – Reviews your financial situation – Counselor may work with creditors to reduce payments and/or lower interest rate

Effect of Minimum Payments Card Interest Minimum Total Payment Balance Rate Payment Interest Time $5, 000 15% $150 $6, 508 $1, 508 3 years 8 months $5, 000 25% $150 $8, 625 $3, 625 4 years 10 months

How To Pay Off Debt: • Stop acquiring new debt • Establish emergency savings • Implement a debt snowball (www. powerpay. org) ― List all debts from the smallest balance to largest ― Pay the minimum on everything but the target debt until it is paid off ― Then add the payments from the target debt to the next debt (see example) ― Continue this process until you are debt free

Debt Snowball: www. powerpay. org Example: An Individual who can pay $100 per month more than the minimum balance on the credit cards and monthly amounts on revolving credit. Creditor Name Balance Minimum Interest Payment Rate Credit Card #1 $ 432. 97 $ 25. 00 23. 75% Credit Card #2 $1, 183. 00 $100. 00 15. 27% Vehicle Loan $3, 812. 00 $361. 00 7. 87% Student Loan $4, 418. 18 $105. 41 6. 18% TOTAL $9, 846. 15 $591. 41

Debt Snowball: Payment Plan

Powerpay Results Total Debt $9, 84614 Without Snowball Payment Total Repaid Total Interest Time in Debt Time Saved $$ Saved With Snowball $591. 41 $691. 41 $10, 779. 14 $10, 350. 60 $932. 99 $504. 45 4 years 1 year 0 months 3 months 2 years 9 months $428. 54

Credit Next Steps • Limit your debt – Your Spending Plan is key! • Utilize traditional lending institutions • Avoid predatory lending sources • Debt consolidation • Establish Debt Repayment Plan – Use debt snowball – www. powerpay. org

What Have You Learned? (Post-Test)

What Have You Learned? Post-Test from Participant’s Guide 1. What should you evaluate when considering a loan? (Select all that apply). a. Is there a less expensive alternative to this lender? b. What happens if my payments are late? c. What happens if the loan is not paid back in full? d. What are the fees and the APR? 2. What actions can you take to reduce relying on credit cards? (Select all that apply) a. Give into temptation b. Build savings c. Build a monthly spending plan d. Evaluate your needs and wants 3. Which of the following will NOT contribute to a successful debt snowball plan? a. Use a spending plan with expenses less than income to avoid new debt b. Pay the minimum on every debt except the target until it is paid off c. Not having a monthly spending plan d. Once a debt is paid off add those payments to the next target debt

What Have You Learned? Post-Test from Participant’s Guide 4. Which of the following are true about a secured credit card? (Select all that apply). a. Uses your savings as collateral b. Requires a high credit score to qualify c. Helps you build your credit score d. Available to almost anyone, regardless of your credit history 5. What is true about predatory lending? (Select all that apply) a. The lender approves a loan based on your credit score b. The lender reports payments to credit reporting agencies c. The company is deceptive in its advertising d. APRs are less than traditional lenders

What Have You Learned? Post-Test from Participant’s Guide 1. What should you evaluate when considering a loan? (Select all that apply). a, b, c and d are appropriate answers. It is important to know the costs associated with any loan. Costs can include more than just the interest paid. 2. What actions can you take to reduce reliance on credit cards? (Select all that apply) b. Build savings c. Build a monthly spending plan d. Evaluate your needs and wants Giving into temptation will not help you reduce your reliance on credit. 3. Which of the following will NOT contribute to a successful debt snowball plan? a. Use a spending plan with expenses less than income to avoid new debt b. Pay the minimum on every debt except the target until it is paid off c. Not having a monthly spending plan d. Once a debt is paid off add those payments to the next target debt To be successful in reducing your debt, you should have a monthly spending plan

What Have You Learned? Post-Test from Participant’s Guide 4. Which of the following are true about a secured credit card? (Select all that apply). a. Uses your savings as collateral c. Helps you build your credit score d. Available to almost anyone, regardless of your credit history A secured card is usually available to people with any credit profile 5. What is true about predatory lending? (Select all that apply) a. The lender approves a loan based on your credit score b. The lender reports payments to credit reporting agencies c. The company is deceptive in its advertising d. APRs are less than traditional lenders Predatory lenders often offer loans to people without a credit check, they may be deceptive in their advertising, costly and may not report payments to credit reporting agencies.

Assignment Today’s Lesson (Financial Empowerment Passport) • • • Review Affordable Housing Guide Obtain a Copy of your Chex. Systems Report Consider registering with www. donotcall. gov Discuss with your coach potential threats to your credit Continue budgeting so that you can have three months of living on a budget prior to the end of the challenge Continue saving so that you can have three months of savings growth and at least $300 of an emergency fund by the end of the challenge Read Web Tools Resources Guide www. bankonhr. org Read Homework Notes Reconcile Bank Statement Make contact with your Coach

Questions?