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Money TalksMoney Talks::
If you’re not careful,If you’re not careful,It just says It just says “Goodbye”“Goodbye” Tips to help you avoid:Tips to help you avoid:
High-cost Loans, Frauds, Scams,High-cost Loans, Frauds, Scams,
& other financial troubles & other financial troubles To continue the slide show, press Page Down, or mouse click.To back up, press the Page Up key on your keyboard.To end the slide show, click on the Back ← command.
Is Education Worth It?Is Education Worth It?
Average Annual Income Average Annual Income (2002 U.S. Census Bureau)(2002 U.S. Census Bureau)
High School DropoutHigh School Dropout20,76420,764
High School GraduateHigh School Graduate 27,16027,160 College GraduateCollege Graduate 43,52943,529
TheTheGreed Greed SpectruSpectrumm
LegaLegall
HonestHonest
FairFair
IllegaIllegall
GreedGreedThere are There are people out people out there who there who treat others treat others with with honesty, honesty, integrity, integrity, and fairness.and fairness.
There are There are also those also those who will who will cheat, steal, cheat, steal, and some will and some will even murder even murder for money.for money.
Some find legal means of Some find legal means of cheating from us if we aren’t cheating from us if we aren’t careful.careful.
Cheat Cheat
StealSteal
MurderMurderSome act just like sharks, Some act just like sharks, and don’t care what is legal and don’t care what is legal or not.or not.
What makes us What makes us susceptible?susceptible?
Utah has a reputation for being one of the fraud capitals of the world. Utah has a reputation for being one of the fraud capitals of the world. Reasons?Reasons?
HonestyHonestytoo too trustingtrusting
Most of us try to be honest, we are used to dealing with other honest people, and too Most of us try to be honest, we are used to dealing with other honest people, and too often, we are unprepared when a con artist comes along.often, we are unprepared when a con artist comes along.
It is sad and ironic that our personal honesty can lead us to be too trusting.It is sad and ironic that our personal honesty can lead us to be too trusting.
WantsWantsEven though we don’t like to think of Even though we don’t like to think of ourselves as greedy, greed is not an on-ourselves as greedy, greed is not an on-off switch. It may be said that all of us off switch. It may be said that all of us have some degree of greed. If we have some degree of greed. If we channel that greed in a positive direction, channel that greed in a positive direction, it may be called positive motivation. it may be called positive motivation. If we If we allow our greed to take us into the allow our greed to take us into the negative realms, vile and destructive negative realms, vile and destructive behaviors result.behaviors result.
PositivePositive MotivatioMotivatio
nn
Negative Negative GreedGreed
Service With a Service With a SmileSmile
The best cons use them very The best cons use them very well!well!How can we protect ourselves from smiley-faced crooks?How can we protect ourselves from smiley-faced crooks?
Don’t sign it -Don’t sign it -unless you agree to it!unless you agree to it!
How can you agree to it if How can you agree to it if you don’t understand it?you don’t understand it?How can you understand it, How can you understand it, if you don’t read it?if you don’t read it?If you still don’t understand If you still don’t understand it, get some help it, get some help beforebefore signing!!!signing!!!
Tips to help you avoid Tips to help you avoid a lot of the problems: a lot of the problems:
NOTHINGNOTHING isis
RISKRISK-FREE-FREE
Especially nothing involving Especially nothing involving money!money!If someone claims that something is “risk free” they either don’t understand, or they If someone claims that something is “risk free” they either don’t understand, or they are lying (if money is involved, there is always risk of loss, as well as opportunity loss, are lying (if money is involved, there is always risk of loss, as well as opportunity loss, etc.)!etc.)!
The Greater the The Greater the
RateRateTheTheHigherHigher
thethe RiskRiskNot only in racing, but:Not only in racing, but:
Especially in Especially in financial matters!financial matters!
00.5
11.5
22.5
33.5
44.5
5
Reg. Savings CD (TimeCertificate)
Exception?Exception?If you have money at a federally insured bank or If you have money at a federally insured bank or credit union, you can usually get a better interest credit union, you can usually get a better interest rate without changing your risk of loss - by putting rate without changing your risk of loss - by putting your money into time certificates, rather than in a your money into time certificates, rather than in a regular savings account. There is a timing risk, regular savings account. There is a timing risk, however. If you need your money now, and your however. If you need your money now, and your certificate doesn’t mature for 3 months, you have a certificate doesn’t mature for 3 months, you have a timing problem.timing problem.
If it sounds too good to be If it sounds too good to be truetrue
It is!It is!If you will remember this one saying, If you will remember this one saying, and use a little common sense, you’ll and use a little common sense, you’ll be able to avoid most of the frauds be able to avoid most of the frauds and scams. Most of them promise and scams. Most of them promise unrealistic rewards or benefits. The unrealistic rewards or benefits. The con artists depend on people whose con artists depend on people whose greed exceeds their good judgement!greed exceeds their good judgement!
Why would someone you don’t even Why would someone you don’t even know want to give you money, or know want to give you money, or teach you some secret way to get it? teach you some secret way to get it? Don’t fall for it!Don’t fall for it!
When big money is at When big money is at stakestake
GreedGreed BrainBrain
InterestInterestIf you If you savesave money, you money, you
Get itGet it
If you If you borrowborrow money, you money, you
Pay itPay it
A very easy concept, but not enough peopleA very easy concept, but not enough people
put it to work in their lives!put it to work in their lives!
If you spend too If you spend too much of your much of your future earnings, future earnings, you mess up your you mess up your future.future.
Don’t participate in Don’t participate in unethical deals!unethical deals!
What assurance do What assurance do you have that they you have that they won’t also con you?won’t also con you?
If someone offers you a If someone offers you a deal that takes advantage deal that takes advantage
of someone else...of someone else...
Want to know an easy way Want to know an easy way to make a million dollars to make a million dollars
next year?next year?
Invest Invest $10,000,000 $10,000,000 at 10% APRat 10% APR
Want to know another Want to know another way?way?
Put $1 into Put $1 into savings each savings each monthmonth
-- for 168 years -- for 168 years (at 5%).(at 5%).
These may sound silly, but somewhere in between These may sound silly, but somewhere in between $1,000,000 for 1 year, and $1 for 168 years, is a $1,000,000 for 1 year, and $1 for 168 years, is a
valid way to build wealth.valid way to build wealth.
Save $100 each month at Save $100 each month at 5%5%
$0$2,000$4,000$6,000$8,000
$10,000$12,000$14,000$16,000$18,000$20,000
Savings $1200 Interest Earned $30
1styear
Save $100 each month at Save $100 each month at 5%5%
$0$2,000$4,000$6,000$8,000
$10,000$12,000$14,000$16,000$18,000$20,000
Savings $6000 Interest Earned $830
5thyear
Save $100 each month at Save $100 each month at 5%5%
$0$2,000$4,000$6,000$8,000
$10,000$12,000$14,000$16,000$18,000$20,000
Savings $12000 Interest Earned$3530
10thyear
Save $100 each month at Save $100 each month at 5%5%
$0$2,000$4,000$6,000$8,000
$10,000$12,000$14,000$16,000$18,000$20,000
Savings $18000 Interest Earned$8730
15thyear
Now earning > $110+ each Now earning > $110+ each monthmonth
Savings Goal:Savings Goal:
0%1%2%3%4%5%6%7%8%9%
10%
Emergency For Sure Buy Stuff
Many financial experts recommend that you save 10% of what you earn. Stash it Many financial experts recommend that you save 10% of what you earn. Stash it away and try to never, ever spend it! In order to do that, you will need at least one away and try to never, ever spend it! In order to do that, you will need at least one other account: I call it the “for sure” savings account. This account is for the “for sure” other account: I call it the “for sure” savings account. This account is for the “for sure” expenses which come from time to time. Example: Auto repairs. If we drive a car, we expenses which come from time to time. Example: Auto repairs. If we drive a car, we will have repairs, maintenance, and insurance. We don’t always know when, but we will have repairs, maintenance, and insurance. We don’t always know when, but we know that they will happen. Another example: Christmas. Those among us who know that they will happen. Another example: Christmas. Those among us who celebrate Christmas are highly likely to spend significant amounts at Christmastime.celebrate Christmas are highly likely to spend significant amounts at Christmastime.
Start With:Start With:
0%1%2%3%4%5%6%7%8%9%
10%
Emergency For Sure Buy Stuff
Start immediately with a “For Sure” savings. Estimate your for sure expenses for Start immediately with a “For Sure” savings. Estimate your for sure expenses for each year and save enough each month to cover them.each year and save enough each month to cover them.
When you decide to do the emergency fund, you may not be able to start with 10% When you decide to do the emergency fund, you may not be able to start with 10% right away. But start with something, even if it is only 1%. Then, as your income right away. But start with something, even if it is only 1%. Then, as your income increases, increase the amount going to your emergency fund at least until you reach increases, increase the amount going to your emergency fund at least until you reach 10%.10%.
Increase as you can:Increase as you can:
0%1%2%3%4%5%6%7%8%9%
10%
Emergency For Sure Buy Stuff
Keep increasing as your income increases.Keep increasing as your income increases.
Build More:Build More:
0%1%2%3%4%5%6%7%8%9%
10%
Emergency For Sure Buy Stuff
More:More:
0%1%2%3%4%5%6%7%8%9%
10%
Emergency For Sure Buy Stuff
Penalty for withdrawal
IRA
401K
457K
Roth IRAInconvenientInconvenient
You may wish to do like some people do: put your emergency fund into accounts You may wish to do like some people do: put your emergency fund into accounts which penalize withdrawal. For many of us, that thought of penalty is sufficient to which penalize withdrawal. For many of us, that thought of penalty is sufficient to prevent us from withdrawing the money early. It is also advisable to put your “for prevent us from withdrawing the money early. It is also advisable to put your “for sure” savings into an account which is inconvenient to get to. If it is too easy to access, sure” savings into an account which is inconvenient to get to. If it is too easy to access, it may be gone when you need it.it may be gone when you need it.
Invest vs. SaveInvest vs. Save
0
1000
2000
3000
4000
5000
6000
7000
8000
Here is a graph of the growth pattern of a particular mutual fund (group of stocks) Here is a graph of the growth pattern of a particular mutual fund (group of stocks) compared to the same amount invested at a slow, steady pace of a 5% federally compared to the same amount invested at a slow, steady pace of a 5% federally insured time certificate. Notice how the mutual fund has had stronger growth, but also insured time certificate. Notice how the mutual fund has had stronger growth, but also periods of decline. What is it going to do next? You may wish to keep at least some of periods of decline. What is it going to do next? You may wish to keep at least some of your savings in the safer, but slower growing time certificates.your savings in the safer, but slower growing time certificates.
Invest vs. SaveInvest vs. Save
0
1000
2000
3000
4000
5000
6000
7000
8000
If we look at the “growth” during years 2000, 2001, and into 2002, we see that the If we look at the “growth” during years 2000, 2001, and into 2002, we see that the time certificate has done much better. Remember, the greater the rate, the greater time certificate has done much better. Remember, the greater the rate, the greater the risk. Some have described investing in the stock market as “legalized gambling”. the risk. Some have described investing in the stock market as “legalized gambling”. With some study, you may be able to minimize the risk, nevertheless, there is still risk With some study, you may be able to minimize the risk, nevertheless, there is still risk involved, no matter what the investment, or how sure it sounds.involved, no matter what the investment, or how sure it sounds.
Gross IncomeGross Income
0
10000
20000
30000
40000
50000
60000
70000
80000
Dropout$600,000
HS Grad$900,000
College$1,600,000
Fixed Fixed ExpensesExpenses
Disposable Disposable IncomeIncome
This is a graphic representation of the average lifetime earnings of the high school This is a graphic representation of the average lifetime earnings of the high school dropout, graduate, and college graduate. The red represents fixed expenses (housing, dropout, graduate, and college graduate. The red represents fixed expenses (housing, utilities, food, etc.), the green represents income which a person can do with what s/he utilities, food, etc.), the green represents income which a person can do with what s/he pleases.pleases.
Disposable IncomeDisposable IncomeAssuming that during the next 10 years or so, you will have somewhere around Assuming that during the next 10 years or so, you will have somewhere around
$30,000 disposable income,$30,000 disposable income,how much of it do you want to spend on what you want?how much of it do you want to spend on what you want?
$30,000$30,000
~$25,000 ~$25,000 assuming 5 yr. assuming 5 yr.
payoutpayout
~$20,000~$20,000 assuming 5yr. assuming 5yr.
payoutpayout
~14,000~14,000 assuming assuming
5 yr5 yr
7%7%18%18%36%36%SaveSave If you borrow at:If you borrow at:
If you borrow at 7% to buy a new car If you borrow at 7% to buy a new car every 5 years, you’ll only get to every 5 years, you’ll only get to
spend $25,000 on cars spend $25,000 on cars (the rest goes to interest).(the rest goes to interest).If you borrow at 18% by using a If you borrow at 18% by using a
credit card and paying for each of credit card and paying for each of your purchases in an average of 5 your purchases in an average of 5
years, you’ll only get to spend years, you’ll only get to spend ~$20,000 on what you want.~$20,000 on what you want.
Before Before you borrowyou borrow, know the , know the APR!!!APR!!!
Unfortunately, there are still Unfortunately, there are still lenders out there who state rates lenders out there who state rates other than the APR (in violation of other than the APR (in violation of federal law). Some refer to an add-federal law). Some refer to an add-on rate, some to a weekly or on rate, some to a weekly or monthly rate. Remember, the monthly rate. Remember, the basis of comparison is the Annual basis of comparison is the Annual Percentage Rate.Percentage Rate.
9% (9% (add-on rateadd-on rate) is ) is ~20% (A.P.R.)~20% (A.P.R.) Some people only ask: Some people only ask:
“What’s my payment “What’s my payment amount?” Don’t be one of amount?” Don’t be one of them.them.
Annual Percentage Rate Annual Percentage Rate (APR)(APR)
The Federal Truth in Lending Act requires lenders to disclose the APR to The Federal Truth in Lending Act requires lenders to disclose the APR to consumers. It is our basis of comparison. It is a great tool for us to know consumers. It is our basis of comparison. It is a great tool for us to know
if we are getting a good deal!if we are getting a good deal!
When you borrow, always try When you borrow, always try to pay less than...to pay less than...
13% A.P.R.13% A.P.R.Consider Consider yourself unlucky yourself unlucky (or______)(or______) if you can’t if you can’t beat 13%!beat 13%!
Why people pay more than Why people pay more than 13%13%
Not enough incomeNot enough income
UneducateUneducatedd
Bad creditBad credit
DeceivedDeceived
Interest Rate CeilingInterest Rate Ceiling
0
5
10
15
20
25
30
35
40
Banks & CUs<13%
Credit Cards~18%
Small Loan 18-36%
36%36%
<<13%13%
18%18%
If you keep your If you keep your credit good and stay credit good and stay with the reputable with the reputable lenders, you can lenders, you can
nearly always beat nearly always beat 13% APR. 13% APR.
That is, unless That is, unless you use your you use your
credit card as a credit card as a means of means of
borrowing. The borrowing. The average credit average credit
card rate is card rate is ~18%.~18%.
Many small Many small loan loan
companies companies charge charge
between between 18 and 18 and
36% APR. 36% APR.
Some states have Some states have an interest rate an interest rate ceiling of 36%. ceiling of 36%. Utah did at one Utah did at one
time, but currently time, but currently has no limit. We has no limit. We are seeing some are seeing some
rates that are rates that are astronomical.astronomical.For instance:For instance:
TOO EASY LOAN COMPANYTOO EASY LOAN COMPANY
Promissory Note with Security Interest Security: 1996 Promissory Note with Security Interest Security: 1996 OldsOlds
Annual Annual PercentagPercentage Ratee RateThe cost of your The cost of your credit as a yearly credit as a yearly rate.rate.
300%300%
Finance Finance ChargeCharge
The dollar amount The dollar amount the credit will cost the credit will cost you.you.
$4,442.8$4,442.800
Amount Amount FinancedFinanced
The amount of The amount of credit provided to credit provided to you or on your you or on your behalf.behalf.
$$2000.02000.000
Total of Total of PaymentsPayments
The amount you will The amount you will have paid after you have paid after you have made all have made all payments as payments as scheduled.scheduled.
$6,442.80$6,442.80 25% per month25% per monthPayment Schedule:Payment Schedule: 12 Payments of 12 Payments of $536.90$536.90. . Beginning 2/4/99 and on the 4th of each month thereafter until final Beginning 2/4/99 and on the 4th of each month thereafter until final payment ispayment is
made on January 4, 2000.made on January 4, 2000.These are actual figures taken from a real loan which was faxed to the Department These are actual figures taken from a real loan which was faxed to the Department (name of lender changed). Notice the APR. Which is higher 13% or 300%? The (name of lender changed). Notice the APR. Which is higher 13% or 300%? The
borrower got 12 monthly payments of $536. If he pays back everything on time, he borrower got 12 monthly payments of $536. If he pays back everything on time, he pays a total of $6,443 in one year. He pledged a 96 Oldsmobile, which was worth pays a total of $6,443 in one year. He pledged a 96 Oldsmobile, which was worth
about $10,000 at the time this loan was written. If he misses a payment, they take about $10,000 at the time this loan was written. If he misses a payment, they take his car. What happens to his equity? Many of these “auto title lenders” have been his car. What happens to his equity? Many of these “auto title lenders” have been
stating a monthly rate rather than the APR.stating a monthly rate rather than the APR.
Auto Auto PurchasePurchase HonestHonest
CheatCheat
StealSteal
MurderMurder
Where on the greed spectrum are car Where on the greed spectrum are car salesmen? They can be anywhere. Some salesmen? They can be anywhere. Some
are very unscrupulous, others are very are very unscrupulous, others are very honest. Even if you deal with an honest honest. Even if you deal with an honest
one, you still have a conflict of interest. He one, you still have a conflict of interest. He wants to make money, you want avoid wants to make money, you want avoid paying as much as you can. Who is to paying as much as you can. Who is to
protect you? If you don’t, probably nobody. protect you? If you don’t, probably nobody.
Auto Loans:Auto Loans:
APRAPR 7% 7% 12%12% Loan Amt $10,000 $10,000Loan Amt $10,000 $10,000 TermTerm 5 years 5 years 5 years 5 years Mo PmtMo Pmt $ 198 $ 198 $ 222$ 222 InterestInterest $ 1,881 $ 1,881 $ 3,347$ 3,347 Tot. Pmts $11,881Tot. Pmts $11,881 $13,347$13,347
DifferenceDifference $1,466$1,466
25%25% 10,00010,000 5 years5 years $ 294$ 294 $ 7,610$ 7,610 $17,610$17,610
$5,729$5,729
Comparing different financing Comparing different financing arrangements, and the cost of borrowing arrangements, and the cost of borrowing
$10,000 at $10,000 at 7, 12, and 25% APR. 7, 12, and 25% APR.
The individual who got The individual who got the 25% rate would pay a the 25% rate would pay a total of $5729 more than total of $5729 more than the one who got the 7% the one who got the 7% rate. He knew about the rate. He knew about the
7% loan, but didn’t 7% loan, but didn’t qualify because of bad qualify because of bad
credit.credit.
Notice that the individual who got the 12% Notice that the individual who got the 12% rate pays a total of $1466 more than the one rate pays a total of $1466 more than the one who got 7% (assuming each pay according to who got 7% (assuming each pay according to the terms of the contract). If he had made 5 the terms of the contract). If he had made 5 phone calls to lenders, he would have found phone calls to lenders, he would have found
the 7% loan. Is it worth $1466 to make 5 the 7% loan. Is it worth $1466 to make 5 phone calls? Sometimes yes!phone calls? Sometimes yes!
InsuranceInsurance Single interest ins.Single interest ins.As the name implies, it only protects the lenderAs the name implies, it only protects the lender
More expensive!More expensive!
Full CoverageFull Coverage
Liability & P.I.P. Liability & P.I.P.
“No-Fault”“No-Fault” Utah State law requires No-fault insurance, the Utah State law requires No-fault insurance, the
penalties for failure to maintain are severe.penalties for failure to maintain are severe. Fails Fails to to provideprovide No-Fault No-Fault Penalties for failure to maintain no-fault insurance:Penalties for failure to maintain no-fault insurance:
License Revoked 1 yr+ License Revoked 1 yr+ Car Impounded $200+Car Impounded $200+ Ticket Ticket && fine $400-1000 fine $400-1000 SR 22 (high risk) Ins. SR 22 (high risk) Ins.
(very expensive)(very expensive)
CollisionCollision ComprehensiveComprehensive
Lenders require collision and Lenders require collision and comprehensive insurance. Failure comprehensive insurance. Failure to maintain insurance puts the to maintain insurance puts the borrower in default of his/her borrower in default of his/her contract. At default, the lender can contract. At default, the lender can repossess, but instead, usually add:repossess, but instead, usually add:
How Much Can I How Much Can I Afford to borrow?Afford to borrow?
One tool used by One tool used by many of the more many of the more reputable lenders :reputable lenders :
Debt-to-Debt-to-Income RatioIncome Ratio
0%10%20%30%40%50%60%70%80%90%
100%
Mo. Inc.Mo. Inc.
Mo. DebtMo. DebtPmts.Pmts.
36%36%
If your monthly debt payments (including If your monthly debt payments (including mortgage or rent) are less than 36% of your mortgage or rent) are less than 36% of your monthly gross income, and if your credit is monthly gross income, and if your credit is good, you have a good chance of getting a good, you have a good chance of getting a
loan with the lower-rate lenders.loan with the lower-rate lenders.Why not 96%? Because we need to live:Why not 96%? Because we need to live:
How Much Can I How Much Can I Afford to borrow?Afford to borrow?
0%10%20%30%40%50%60%70%80%90%
100%
Mo. Inc.Mo. Inc.
36%36%
Debt pmtsDebt pmts
TaxesTaxes
FoodFood
Misc.Misc.
UtilitieUtilitiess
If you have a debt-to-income ratio If you have a debt-to-income ratio of 36%, some months, you will of 36%, some months, you will
have just enough to cover have just enough to cover expenses. expenses.
Occasionally you Occasionally you will have a bit will have a bit
extra.extra.
What will you do What will you do whenwhen you have a you have a high-expense month?high-expense month?
Remember the “for sure” savings Remember the “for sure” savings account! You will have months like account! You will have months like
this!this!
CreditCredit
Credit Cards: Our Friends?Credit Cards: Our Friends?
Or Our Foes?
They can be either, depending on how we choose to use They can be either, depending on how we choose to use them.them.
CreditCredit
Credit Card PurchaseCredit Card Purchase
-400
-350
-300
-250
-200
-150
-100
-50
0
Bal-400
-350
-300
-250
-200
-150
-100
-50
0
Purch Pmt Bal
If we pay off our credit card balance each month, we pay no If we pay off our credit card balance each month, we pay no interest (most credit cards). interest (most credit cards).
If we don’t pay the entire balance, interest will be charged.If we don’t pay the entire balance, interest will be charged.
Simplified Credit Card Simplified Credit Card StatementStatement
Last Month’s BalanceLast Month’s Balance 128.42128.42
Payments receivedPayments received (128.42) (128.42)
InterestInterest 0 0
Auto Repair CenterAuto Repair Center 289.94 289.94
Joe’s Gas & GoodiesJoe’s Gas & Goodies 14.3214.32
Babe’s Apparel StoreBabe’s Apparel Store 96.2496.24
Ending balanceEnding balance 400.50 400.50
Minimum Payment DueMinimum Payment Due 20.0020.00
We have We have the choice of the choice of paying the paying the entire entire balance, the balance, the minimum minimum required required payment, or payment, or some some amount in amount in between. If between. If we wish to we wish to avoid paying avoid paying interest, we interest, we must pay must pay the entire the entire balance.balance.
-5000
-4000
-3000
-2000
-1000
0
1000
Minimum paymentMinimum payment (and make no other (and make no other purchases):purchases):
At At 18% it would take18% it would take 3434 yrs to pay yrs to pay off -- $ 12,893 off -- $ 12,893 int.int.At 21.9% At 21.9%
8888 yrs to pay off -- $ 43,729 yrs to pay off -- $ 43,729 int.int.
Paying only the minimum required payment is a Paying only the minimum required payment is a very costly way to use credit cardsvery costly way to use credit cards
A very costly way to use credit A very costly way to use credit cardscards
-5000
-4000
-3000
-2000
-1000
0
1000
-5000
-4000
-3000
-2000
-1000
0
1000
Some people charge Some people charge against their credit cards against their credit cards to the limit, then try to to the limit, then try to consolidate. Many consolidate. Many financial institutions say:financial institutions say:
Yes, but only Yes, but only
IF IF you haveyou have good creditgood credit
enough enough incomeincome
equityequity
-5000
-4000
-3000
-2000
-1000
0
1000
The most expensive way to useThe most expensive way to useCredit CardsCredit Cards
-1200
-1000
-800
-600
-400
-200
0
200
Some people charge on their credit cards until they go slightly over their Some people charge on their credit cards until they go slightly over their limit, then - even if they make the minimum required payment, they get limit, then - even if they make the minimum required payment, they get deeper into debt as their balance increases because of:deeper into debt as their balance increases because of:
Over-limit fees.Over-limit fees.
Credit CardsCredit Cards
Set up Fee?Set up Fee? Annual Fee?Annual Fee?
WonderCarWonderCardd
5224 789 003 5224 789 003 290290
Grace Period?Grace Period?
Most credit card companies do not charge setup fees or Most credit card companies do not charge setup fees or annual fees.annual fees.
If you wish to avoid paying interest, make sure your If you wish to avoid paying interest, make sure your credit card plan charges no interest when you pay off the credit card plan charges no interest when you pay off the balance within the grace period, and do it!.balance within the grace period, and do it!.
APR?APR?If you don’t pay your balance each month, be sure to If you don’t pay your balance each month, be sure to pay attention to the Annual Percentage Rate and find a pay attention to the Annual Percentage Rate and find a credit card with a low rate.credit card with a low rate.
27” TV27” TV
$400.00$400.00 cashcashIf you have saved enough in your If you have saved enough in your “buy stuff” account, you can withdraw “buy stuff” account, you can withdraw your money and buy the TV. If you use your money and buy the TV. If you use a credit card, and pay off the balance a credit card, and pay off the balance within the billing cycle, you pay no within the billing cycle, you pay no interest (if it is a credit card which has interest (if it is a credit card which has the grace period).the grace period).
Suppose you see a TV you want to Suppose you see a TV you want to buy with a retail price of $400.buy with a retail price of $400.
27” TV27” TVOn SaleOn Sale
$350.00$350.00 by smart shopping by smart shopping
If you shop around and If you shop around and find the same TV for $350, find the same TV for $350, you just saved $50. But you just saved $50. But what did you save in what did you save in terms of your ability to terms of your ability to earn money? If you are in earn money? If you are in an average tax bracket of an average tax bracket of about 20%, you must earn about 20%, you must earn $62.50 before you can $62.50 before you can spend $50. So if you spend $50. So if you avoid spending $50, that avoid spending $50, that is like earning $62.50. If is like earning $62.50. If you earn $10 per hour, you earn $10 per hour, you just saved the you just saved the equivalent of 6 1/4 hours equivalent of 6 1/4 hours of work!of work!
$50 / .80 = $62.50 earn$50 / .80 = $62.50 earn
$62.50 / 10 = ~6$62.50 / 10 = ~6 1/4 hrs1/4 hrs
27” TV 27” TV $400.00$400.00using a credit cardusing a credit card at 18% A.P.R.at 18% A.P.R.
If a person charges the $400 TV and If a person charges the $400 TV and can pay-can pay-
$26.00 $26.00 per month per month itit will take will take
18 months18 months to payoff. to payoff.
During that time the buyer would payDuring that time the buyer would pay
$59.00 $59.00 in interest, for ain interest, for a
total cost of total cost of $$459459
$59 shouldn’t ruin anybody’s life, but, who wants $59 added to each of their purchases?
$59.00 / .80 = $74 earn $74 / 10 = ~7.4 hrs extra to pay the
59.
27” TV $400.0027” TV $400.00Finance CompanyFinance Company
at 36% A.P.R.at 36% A.P.R. 18 mo. Pmts.18 mo. Pmts. $29.00 per mo.$29.00 per mo. $123.00 int.$123.00 int.
Total Cost $Total Cost $523523
$123 / .80 = $154$123 / .80 = $154 $154 / 10 = ~15.4 hrs$154 / 10 = ~15.4 hrs
27” TV $400.0027” TV $400.00Rent-to-OwnRent-to-Own
A rent-to-own company was offering A rent-to-own company was offering the same TV forthe same TV for
$70 $70 per monthper month How many months would be fair How many months would be fair
before ownership? When asked, they before ownership? When asked, they saidsaid
18 months18 months
(196% A.P.R.)(196% A.P.R.) ($860.00 int.)($860.00 int.)
Total Cost $Total Cost $12601260
$860.00 / .80 = $1075.00 earn$860.00 / .80 = $1075.00 earn $1075.00 / 10 = 107 hrs$1075.00 / 10 = 107 hrs
Neither the APR nor the interest is Neither the APR nor the interest is required to be disclosed on a rent-to-own required to be disclosed on a rent-to-own contract, because technically, they are contract, because technically, they are not “loans”.not “loans”.
27” TV $400.0027” TV $400.00Too Too Easy Loan Easy Loan ((Bad Bad
Credit OKCredit OK)) 300% A.P.R.300% A.P.R. Car Title PawnCar Title Pawn If 18 monthsIf 18 months $102.00 payments$102.00 payments $1,433 interest$1,433 interest
Total Cost Total Cost
$$18331833 $1433 / .80 = $1791$1433 / .80 = $1791 1791 / 10 = 179 hrs 1791 / 10 = 179 hrs
-110-100-90-80-70-60-50-40-30-20-10
0
27” TV $400.0027” TV $400.00PaydayPayday Loan Loan
If a person borrows 100 from a payday lender for a If a person borrows 100 from a payday lender for a week, not a big deal. S/he paid $10 interest. However week, not a big deal. S/he paid $10 interest. However we are finding that many people use payday loans we are finding that many people use payday loans over and over.over and over.
-110-100-90-80-70-60-50-40-30-20-10
0
27” TV $400.0027” TV $400.00PaydayPayday Loan Loan
27” TV $400.0027” TV $400.00 10% (per week)10% (per week) Payday lenders have been notorious Payday lenders have been notorious
for illegally stating a weekly rate rather for illegally stating a weekly rate rather than the APR when asked about the than the APR when asked about the cost of their loans. Remember, the fair cost of their loans. Remember, the fair basis of comparison for loan costs is basis of comparison for loan costs is the APR (as well as the dollar amount).the APR (as well as the dollar amount).
$2,725 interest$2,725 interest Total Cost $Total Cost $31253125
10% per week is 10% per week is about 520% APR.about 520% APR. (10% x (10% x 52 wks = 520)52 wks = 520) 18 months18 months Payday loans are Payday loans are not intended to be more than short-not intended to be more than short-term loans, usually less than one term loans, usually less than one month. But, for comparison purposes, month. But, for comparison purposes, if someone used a series of payday if someone used a series of payday loans to finance the TV over 18 loans to finance the TV over 18 months:months:
Why?Why? Why do Why do
people pay high interest rates?people pay high interest rates?
Desperate people do Desperate people do desperate thingsdesperate things
--Over-extended--Over-extended. People with excessive . People with excessive debts do not qualify for low-rate loans.debts do not qualify for low-rate loans.
--Bad Credit--Bad Credit. People with bad credit history . People with bad credit history usually do not qualify for low-rate loans.usually do not qualify for low-rate loans.
--Low income--Low income. People with low income . People with low income relative to expenses do not qualify.relative to expenses do not qualify.
--Gambling--Gambling. Compulsive gambling has been . Compulsive gambling has been the financial downfall of many.the financial downfall of many.
--Alcoholism--Alcoholism. The individual whose 300% . The individual whose 300% loan was shown early in this presentation was an loan was shown early in this presentation was an alcoholic.alcoholic.
--Drugs--Drugs. A very high percentage of the people . A very high percentage of the people in jails and prisons are their because of drugs. X-in jails and prisons are their because of drugs. X-cons have a difficult time establishing good cons have a difficult time establishing good credit.credit.
--Health problems--Health problems. Some health . Some health problems are preventable, and health insurance problems are preventable, and health insurance helps immensely when we do have problems.helps immensely when we do have problems.
Credit CardCredit Card 20002000 0 as agreed 0 as agreed They do like to see a few paid as They do like to see a few paid as
Home Mortgage 70000Home Mortgage 70000 65000 current65000 current agreed, or current accounts.agreed, or current accounts.
Overdraft Line of CrOverdraft Line of Cr 20002000 0 as agreed 0 as agreed Even rarely used credit cards help build “good credit” (as long as a person pays on time and Even rarely used credit cards help build “good credit” (as long as a person pays on time and
doesn’t have too many credit cards). A person can establish credit without paying any interest doesn’t have too many credit cards). A person can establish credit without paying any interest by paying off credit card balances within the billing cycle, and by maintaining an overdraft line by paying off credit card balances within the billing cycle, and by maintaining an overdraft line of credit with a zero balance.of credit with a zero balance.
Bill S. PrestonBill S. Preston 529-00-0000529-00-0000 Employer: Wylde StallynsEmployer: Wylde Stallyns
Credit Bureau Credit Bureau ReportsReports
The low-rate lenders do not want to see payments more than 30 days lateThe low-rate lenders do not want to see payments more than 30 days late Department StoreDepartment Store 10001000 1050 1050 5>30 5>30
Credit CardCredit Card 50005000 4999 4999 6>30,3>60,1>90 6>30,3>60,1>90 especially not 60 & 90 especially not 60 & 90
Dumpy BikesDumpy Bikes 500 500 430 Collection agency 430 Collection agency Fast Car LotFast Car Lot 60006000 0 0 Repossession Repossession Any one of the above can disqualify a person from borrowing from the lower-rate lenders Any one of the above can disqualify a person from borrowing from the lower-rate lenders
for quite some time. Lenders are also starting to pay attention to credit card balances for quite some time. Lenders are also starting to pay attention to credit card balances relative to limits. Credit cards at their limit are often counted negatively as are cards over relative to limits. Credit cards at their limit are often counted negatively as are cards over their limit.their limit.
Popular Credit Scoring Popular Credit Scoring System:System:
35% Payment history35% Payment history– older & small items count lessolder & small items count less
30% Amount of debt30% Amount of debt– overextended?overextended?
15% Length of credit history15% Length of credit history 10% New credit10% New credit
– amount accumulated within amount accumulated within the past 12-18 monthsthe past 12-18 months
10% Types of credit10% Types of credit– too many credit cardstoo many credit cards
Bill S. PrestonBill S. Preston 529-00-0000529-00-0000 Employer: Wylde StallionsEmployer: Wylde Stallions
CreditorCreditor Limit Limit Bal Bal Comments Comments Department StoreDepartment Store 10001000 1050 1050 5>30, 3>60 5>30, 3>60 Credit CardCredit Card 50005000 4999 4999 6>30,3>60,1>90 6>30,3>60,1>90 Dumpy BikesDumpy Bikes 500 500 430 Collection agency 430 Collection agency Fast Car LotFast Car Lot 60006000 0 0 Repossession Repossession Credit CardCredit Card 20002000 0 as agreed 0 as agreed Home Mortgage 70000 65000 currentHome Mortgage 70000 65000 current Overdraft Line of CrOverdraft Line of Cr 20002000 0 as agreed 0 as agreed Some companies claim to be able to remove legitimate debts from credit reports. Some companies claim to be able to remove legitimate debts from credit reports.
They are fraudulent! Do not participate in a fraud. If you find errors on your credit They are fraudulent! Do not participate in a fraud. If you find errors on your credit
report, you may correct them yourself by contacting the credit bureau directly.report, you may correct them yourself by contacting the credit bureau directly.
Credit Repair ScamsCredit Repair Scams
Equifax: 800 685-1111, Trans Union: 800 916-8800, Experian: 888 397-3742
If you don’t pay your bills on If you don’t pay your bills on time, your time, your bad creditbad credit willwill inhibitinhibit
you:you: BorrowingBorrowing Buying a homeBuying a home RentingRenting Many landlords are looking at credit Many landlords are looking at credit
histories.histories.
Increasing insurance ratesIncreasing insurance rates Many Many insurance companies charge higher rates to people with insurance companies charge higher rates to people with poor credit.poor credit.
Credit Card CompaniesCredit Card Companies Many credit Many credit card companies are routinely pulling credit reports on card companies are routinely pulling credit reports on their existing customers. When those customers have their existing customers. When those customers have negative credit with other debtors, their interest rates negative credit with other debtors, their interest rates are increased. are increased.
Getting a good jobGetting a good job Many employers are Many employers are looking at credit reports in their employee selection looking at credit reports in their employee selection process.process.
What if you’ve already What if you’ve already been smashed financially?been smashed financially?
Hang on until you can Hang on until you can bounce back!bounce back!
Satisfy your Satisfy your obligations asap (high obligations asap (high rates 1st)!*rates 1st)!*
Keep everything Keep everything current for 2+ years.current for 2+ years.
*If you can’t, get some *If you can’t, get some help.help.
““Pre-Approved”Pre-Approved”
What Does it mean?What Does it mean?
NOTHING!NOTHING! Beware! Don’t count Beware! Don’t count
on “pre-approved” on “pre-approved” financing financing arrangements. Too arrangements. Too often “pre-approved” often “pre-approved” simply means you simply means you name was obtained name was obtained from a solicitation from a solicitation list.list.
Late Payments can be Late Payments can be
extremely extremely EXPENSIVE!EXPENSIVE! If you pay 30 days late,If you pay 30 days late,
– your credit report is negatively affectedyour credit report is negatively affected which results in increased future costs.which results in increased future costs.
If you are 1 minute late on some contractsIf you are 1 minute late on some contracts– you get late feesyou get late fees
late fees can change a debt from a reasonable late fees can change a debt from a reasonable interest rate to an outrageous effective rate.interest rate to an outrageous effective rate.
RepossessionsRepossessions Contrary to popularContrary to popularbelief, lenders do not need to notify a person before repossessing.belief, lenders do not need to notify a person before repossessing.
Legal & other feesLegal & other fees Fees can bring financial death!Fees can bring financial death!
Top Scams in Utah Top Scams in Utah ~ Derived from information obtained from Utah Division Of Consumer Protection’s website.~ Derived from information obtained from Utah Division Of Consumer Protection’s website.
1.1. Identity TheftIdentity Theft 2. Deceptive Business Training Seminars.2. Deceptive Business Training Seminars. 3. Fraudulent Telemarketing Schemes.3. Fraudulent Telemarketing Schemes. 4. Fraudulent Charities.4. Fraudulent Charities. 5. Travel Scams.5. Travel Scams. 6. Nigerian Money Frauds.6. Nigerian Money Frauds. 7. Deceptive Car Repair Practices.7. Deceptive Car Repair Practices. 8. Prize Promotion Scams.8. Prize Promotion Scams. 9.9. Telephone Slamming & Cramming.Telephone Slamming & Cramming. 10. Advance Fee Loan & Credit Card Scams.10. Advance Fee Loan & Credit Card Scams. 11. Credit Repair Scams.11. Credit Repair Scams.
Loan ScamLoan Scam(STRICTLY CONFIDENTIAL)(STRICTLY CONFIDENTIAL)
We want to assist you in this UNIQUE venture.We want to assist you in this UNIQUE venture. These European transactions are Legal, These European transactions are Legal,
allowing you to borrow hundreds of thousands allowing you to borrow hundreds of thousands of dollars and NEVER have to repay a cent!!of dollars and NEVER have to repay a cent!!
How? The lender (Offshore Bank) deducts a How? The lender (Offshore Bank) deducts a compensating balance from the proceeds of compensating balance from the proceeds of your loan, your loan is SELF-LIQUIDATING or your loan, your loan is SELF-LIQUIDATING or PAID OFF by the compensating balance.PAID OFF by the compensating balance.
EVERYONE QUALIFIES. No risk what so ever!!EVERYONE QUALIFIES. No risk what so ever!! Application Fee $65.Application Fee $65.
Loan ScamLoan Scam(STRICTLY (STRICTLY CONFIDENTIALCONFIDENTIAL))
We want to assist you in this UNIQUE venture.We want to assist you in this UNIQUE venture. These These EuropeanEuropean transactions are Legal, transactions are Legal,
allowing you to borrow allowing you to borrow hundreds of thousandshundreds of thousands of dollars and of dollars and NEVER have to repayNEVER have to repay a cent!! a cent!!
How? The lender (How? The lender (OffshoreOffshore Bank) deducts a Bank) deducts a compensating balancecompensating balance from the proceeds of from the proceeds of your loan, your loan is your loan, your loan is SELF-LIQUIDATINGSELF-LIQUIDATING or or PAID OFF by the compensating balance.PAID OFF by the compensating balance.
EVERYONE QUALIFIESEVERYONE QUALIFIES. . No riskNo risk what so ever!! what so ever!! Application Application Fee $65Fee $65..
Nonsense!Nonsense!
E-mail Scam?E-mail Scam? WORLD CURRENCY CARTEL will instruct a WORLD CURRENCY CARTEL will instruct a
LIMITED number of people on ‘HOW TO LIMITED number of people on ‘HOW TO CONVERT $25 INTO $100 OF LEGAL CONVERT $25 INTO $100 OF LEGAL CURRENCY’. We will transact the first CURRENCY’. We will transact the first conversion for you, after that you can easily conversion for you, after that you can easily and quickly do this on your own, hundreds or and quickly do this on your own, hundreds or even thousands of times every month. TAKE even thousands of times every month. TAKE ADVANTAGE OF THIS “SECRET FLAW”!… ADVANTAGE OF THIS “SECRET FLAW”!… There is a one time membership fee of only There is a one time membership fee of only $35… Your important instructions will be $35… Your important instructions will be mailed… We are only accepting CHECK-BY-mailed… We are only accepting CHECK-BY-FAX payable to NDML. Fax it to 212-000-FAX payable to NDML. Fax it to 212-000-0000.0000.
E-mail Scam?E-mail Scam? WORLD CURRENCY CARTEL will instruct a WORLD CURRENCY CARTEL will instruct a
LIMITED numberLIMITED number of people on ‘HOW TO of people on ‘HOW TO CONVERT CONVERT $25 INTO $100$25 INTO $100 OF LEGAL OF LEGAL CURRENCY’. We will transact the first CURRENCY’. We will transact the first conversion for you, after that you can easily conversion for you, after that you can easily and quickly do this on your own, hundreds or and quickly do this on your own, hundreds or even even thousands of times every monththousands of times every month. TAKE . TAKE ADVANTAGE OF THIS “ADVANTAGE OF THIS “SECRET FLAWSECRET FLAW”!… ”!… There is a one time membership fee of only There is a one time membership fee of only $35$35… Your important instructions will be … Your important instructions will be mailed… We are only accepting mailed… We are only accepting CHECK-BY-CHECK-BY-FAXFAX payable to NDML. Fax it to 212-000- payable to NDML. Fax it to 212-000-0000.0000. Nonsense!Nonsense!
URGENT URGENT
Provider: Crudcorp Inc.Provider: Crudcorp Inc.
Status: Pre-ApprovedStatus: Pre-Approved
Limit: $10,000Limit: $10,000
Rate: 12% APRRate: 12% APR
Yordas UccerYordas Uccer
1 F St.1 F St.
U-Falls Forthis, UT 84666U-Falls Forthis, UT 84666
Congratulations Ms. Uccer,Congratulations Ms. Uccer,
You have been pre-You have been pre-approved for a gold card approved for a gold card with a $10,000 limit valid with a $10,000 limit valid exclusively toward all exclusively toward all purchases from provider.purchases from provider.
Mail your $29.95 annual fee Mail your $29.95 annual fee along with this notice.along with this notice.
Full details of your Full details of your membership will be membership will be included with your card.included with your card.
URGENT URGENT
Provider: Crudcorp Inc.Provider: Crudcorp Inc.
Status: Pre-ApprovedStatus: Pre-Approved
Limit: $10,000Limit: $10,000
Rate: 12% APRRate: 12% APR
Yordas UccerYordas Uccer
1 F St.1 F St.
U-Falls Forthis, UT 84666U-Falls Forthis, UT 84666
Congratulations Ms. Uccer,Congratulations Ms. Uccer,
You have been pre-You have been pre-approved for a gold card approved for a gold card with a $10,000 limit valid with a $10,000 limit valid exclusively toward all exclusively toward all purchases from providerpurchases from provider..
Mail your Mail your $29.95$29.95 annual fee annual fee along with this notice.along with this notice.
Full details of your Full details of your membership will be membership will be included with your card.included with your card.
Debit Cards?Debit Cards?
Debit CardDebit Card
5224 789 003 5224 789 003 290290
Why?Why? “ “Easy access to checking”Easy access to checking” DangersDangers HoldsHolds on your account on your account Can cause Can cause bounced checksbounced checks Mail orderMail order - dissatisfied? - dissatisfied? Lost or stolen? Lost or stolen? Money Money
gonegone..
Debit Card PurchaseDebit Card Purchase
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Bal
Advantages:Advantages:No debtNo debt (using own money)(using own money)
Easy access to Easy access to checkingchecking
Disadvantages:Disadvantages:Money goneMoney goneHoldsHoldsBounced checksBounced checks
To avoid the To avoid the
Hazards of Hazards of Checking Checking AccountsAccounts
Keep your blank Keep your blank checks in a safe placechecks in a safe place
If someone steals your checks and forges your name, technically, If someone steals your checks and forges your name, technically, since you didn’t sign the checks, you did not authorize the money since you didn’t sign the checks, you did not authorize the money to be deducted from your account, and are therefore not to be deducted from your account, and are therefore not responsible. However, once the money is gone from you account, responsible. However, once the money is gone from you account, you may not be able to get it back. The financial institution may you may not be able to get it back. The financial institution may claim that you were negligent...claim that you were negligent...
To avoid checking acct. To avoid checking acct. problems:problems:
(1) Reconcile(1) Reconcile your records to the bank’s the day your get your bank your records to the bank’s the day your get your bank
statement. The sooner you reconcile, the easier it is. If you fail to notify the bank statement. The sooner you reconcile, the easier it is. If you fail to notify the bank within 60 days errors they may have made, you are unlikely to get your money back.within 60 days errors they may have made, you are unlikely to get your money back.
First Bank First Bank StatementStatementBalanceBalance100.00100.00
DepositsDeposits9/10/009/10/00200.00200.009/14/009/14/00535.29535.29Checks ClearedChecks Cleared9/9/009/9/00 20.0020.009/14/009/14/00120.39120.39
Ending BalanceEnding Balance694.90694.90
BalanceBalance 123.00123.001422 Joe’s grocery 120.391422 Joe’s grocery 120.391423 SLC Utilities 68.001423 SLC Utilities 68.00PaycheckPaycheck 535.29 535.29 635.27635.271424 Dumpy Bikes 25.001424 Dumpy Bikes 25.00 605.27605.27
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To Avoid To Avoid Bounced Bounced ChecksChecks::
Have a Have a backupbackup arrangement for arrangement for when you make a mistake.when you make a mistake.
By setting up an By setting up an overdraft line of credit overdraft line of credit (an empty loan tied to (an empty loan tied to your checking account), your checking account), when you make a when you make a mistake and write a mistake and write a check for more than the check for more than the balance in your balance in your account, you can avoid account, you can avoid bounced checks. bounced checks.
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A loan advance is A loan advance is made to cover your made to cover your check. If you pay off the check. If you pay off the loan balance as soon as loan balance as soon as you learn of it, the you learn of it, the interest and fees are interest and fees are minimal (at most minimal (at most financial institutions).financial institutions).
Overdraft Line of Overdraft Line of CreditCredit
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CheckinCheckingg
$20 $20 returned check returned check feefee
$60$60
100100
300…300…
$600 $600 FeesFees
A lady made a simple A lady made a simple mistake on her check mistake on her check register, which caused register, which caused one check to bounce. one check to bounce. The bank deducted a The bank deducted a $20 returned check fee. $20 returned check fee. That caused 3 other That caused 3 other checks to bounce… checks to bounce… Within one month, she Within one month, she had incurred $600 of had incurred $600 of returned check fees. If returned check fees. If she had set up and she had set up and properly maintained an properly maintained an overdraft line of credit, overdraft line of credit, she would likely have she would likely have incurred less than $5 of incurred less than $5 of interest and fees.interest and fees.
If you don’t set up a If you don’t set up a backup system, you backup system, you could run into a could run into a situation like this:situation like this:
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Some people defeat the Some people defeat the purpose of their overdraft purpose of their overdraft
line of credit line of credit
VCRVCR StereoStereo Bike RackBike Rack Mountain BikeMountain Bike TVTV
Line of CreditLine of Credit
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High High raterate
They use their They use their overdraft line of credit overdraft line of credit as a common loan or as a common loan or charge account, and charge account, and thus defeat the purpose thus defeat the purpose of having it. Then, if of having it. Then, if they make a mistake, they make a mistake, their check not only their check not only bounces, but they are bounces, but they are paying interest at a paying interest at a higher rate than is higher rate than is available on other types available on other types of loans.of loans.
And And returned returned
check fees!check fees!
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High High raterate But a high rate times But a high rate times
zero is zero. If you keep zero is zero. If you keep the line of credit empty the line of credit empty (zero balance), you pay (zero balance), you pay no interest, you have a no interest, you have a backup system for your backup system for your checking account, and checking account, and you build a credit rating you build a credit rating without paying interest.without paying interest.
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SavingsSavings
Some financial institutions Some financial institutions allow their checking accounts allow their checking accounts to be tied to savings accounts. to be tied to savings accounts. Then if the customer makes a Then if the customer makes a mistake on their checking mistake on their checking account, the money is account, the money is automatically transferred from automatically transferred from a savings account. This can a savings account. This can work well if sufficient is work well if sufficient is maintained in savings, if it is maintained in savings, if it is not used too often, and if the not used too often, and if the financial institution doesn’t financial institution doesn’t charge large fees.charge large fees.
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SavingsSavings
Keep your backup Keep your backup available for when available for when you need it!you need it!
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Dangers Lurking! Dangers Lurking! Each time you refinance, you Each time you refinance, you
add to your debt (nearly always).add to your debt (nearly always).
If you are considering refinancing or consolidating loans, beware. If you are considering refinancing or consolidating loans, beware. Consolidations and refinances can be very useful, but they can also Consolidations and refinances can be very useful, but they can also cause problems such as much more interest paid over the life o f the cause problems such as much more interest paid over the life o f the loan. Be careful that you don’t defeat your intent. There are monsters loan. Be careful that you don’t defeat your intent. There are monsters out there who are more than willing to take as much money as you are out there who are more than willing to take as much money as you are willing to give them.willing to give them.
In 2002 lady called the Department of Financial Institutions. She had In 2002 lady called the Department of Financial Institutions. She had wanted to get a better rate on her mortgage loan. She found out that wanted to get a better rate on her mortgage loan. She found out that she’d gotten a very bad deal the last time she refinanced.she’d gotten a very bad deal the last time she refinanced.
NWFNWF $147,000$147,000 $17,000$17,000 $164,000$164,000 10%10%
She had refinanced her home 2 years prior “because interest rates She had refinanced her home 2 years prior “because interest rates had gone down.” She thought she was getting the loan terms had gone down.” She thought she was getting the loan terms
shown in the left column below. When she went to refinance again, shown in the left column below. When she went to refinance again, 2 years later “because rates had gone down again,” she found out 2 years later “because rates had gone down again,” she found out she actually had the loan in the middle column below. I asked why she actually had the loan in the middle column below. I asked why she signed such a loan, she said she was in a hurry and didn’t read she signed such a loan, she said she was in a hurry and didn’t read
the documents. A very costly mistake! According to my the documents. A very costly mistake! According to my calculations she lost about $24,000 by not paying attention.calculations she lost about $24,000 by not paying attention.
TypicalTypical Re-financedRe-financed
$147,000$147,000 ““Closing Costs” Closing Costs” $3,000$3,000 New LoanNew Loan
$150,000$150,000 RateRate 8% 8%
DiffDiff $14,00$14,00
00
$3,000$3,000 Prepay PenaltyPrepay Penalty $0 $0 $7,000 $7,000 7,000 7,000 $24,000$24,000
Mortgage Loans:Mortgage Loans:Compare All CostsCompare All Costs
Before Signing AnythingBefore Signing Anything
Badguys Badguys DifferenceDifference
13,466 13,466 (10,432) (10,432)
“ “Closing Costs”Closing Costs”
FeesFees Typical Typical Total Closing Costs $3,034 Total Closing Costs $3,034
Another mortgage company charged a family about $10,000 more in closing costs Another mortgage company charged a family about $10,000 more in closing costs than most other mortgage companies would have charged.than most other mortgage companies would have charged.
Variable vs. Fixed Variable vs. Fixed RateRate
In addition, they were given a variable rate loan (indexed artificially low) and In addition, they were given a variable rate loan (indexed artificially low) and payments increased every 6 months. The borrowers thought they were getting a payments increased every 6 months. The borrowers thought they were getting a fixed rate loan (where payments stay the same).fixed rate loan (where payments stay the same).
Home Loans: BewareHome Loans: Beware
1. Prepayment 1. Prepayment penalties?penalties?
2. Compare Rates2. Compare Rates 3. Compare Fees3. Compare Fees 4. Fixed vs. Variable? 4. Fixed vs. Variable?
Avoid Closing Avoid Closing TrapsTrapsespecially if delayedespecially if delayed
UnderstanUnderstand what you d what you are signing are signing and why.and why.
Take your timeTake your time
Don’t just (sign, sign, sign)Don’t just (sign, sign, sign)
Expect delays, and keep all your Expect delays, and keep all your other obligations current.other obligations current.
Could be one of the most important Could be one of the most important 3 hours of your financial life.3 hours of your financial life.
Avoid Avoid Advanced-Fee Loan ScamsAdvanced-Fee Loan Scams
Don’t fall for promises to get you Don’t fall for promises to get you a loan or a credit card a loan or a credit card regardless of credit problems!regardless of credit problems!
Don’t wire Don’t wire $49$49 to New York… to New York…Don’t give solicitors your account Don’t give solicitors your account
numbers!numbers!
Who do they prey on?Who do they prey on?
The most vulnerable - those who can least The most vulnerable - those who can least afford the loss.afford the loss.
Dear Sir, CONFIDENTIAL BUSINESS PROPOSAL
FROM THE NIGERIANIGERIA CHAMBER OF COMMERCE, I HAVE THE PRIVILEGE TO REQUEST FOR YOUR ASSISTANCE TO TRANSFER THE SUM OF $45.5 MILLION U.S. DOLLARS INTO YOUR ACCOUNT. THE ABOVE SUM RESULTED FROM AN OVER-INVOICED CONTRACT, PAID BY A FOREIGN CONTRACTOR. WE REQUIRE YOUR ASSISTANCE. THE TOTAL SUM WILL BE SHARED AS FOLLOWS: 70% FOR US, 25% FOR YOU AND 5% FOR LOCAL AND INTERNATIONAL EXPENSES INCIDENTAL TO THE TRANSFER. THIS ACTION WAS HOWEVER INTENTIONAL. WE ARE FORBIDDEN TO OPERATE A FOREIGN ACCOUNT THE TRANSFER IS RISK FREE. REPLY URGENTLY, ALBERT KATUKA
Dear Sir, CONFIDENTIAL BUSINESS PROPOSAL
FROM THE NIGERIANIGERIA CHAMBER OF COMMERCE, I HAVE THE PRIVILEGE TO REQUEST FOR YOUR ASSISTANCE TO TRANSFER THE SUM OF $45.5 MILLION U.S. DOLLARS INTO YOUR ACCOUNT. THE ABOVE SUM RESULTED FROM AN OVER-INVOICED CONTRACT, PAID BY A FOREIGN CONTRACTOR. WE REQUIRE YOUR ASSISTANCE. THE TOTAL SUM WILL BE SHARED AS FOLLOWS: 70% FOR US, 25% FOR YOU AND 5% FOR LOCAL AND INTERNATIONAL EXPENSES INCIDENTAL TO THE TRANSFER. THIS ACTION WAS HOWEVER INTENTIONAL. WE ARE FORBIDDEN TO OPERATE A FOREIGN ACCOUNT THE TRANSFER IS RISK FREE. REPLY URGENTLY, ALBERT KATUKA
Americans have been flooded by numerous versions of the Americans have been flooded by numerous versions of the Nigerian money scam, don’t fall prey to their too-good-to-Nigerian money scam, don’t fall prey to their too-good-to-be-true claims.be-true claims.
#1 Cause of Divorce#1 Cause of Divorce
70-80% of 70-80% of divorcing divorcing couples attribute couples attribute the marriage the marriage breakdown to breakdown to money problemsmoney problems
BEWAREBEWARE Tell me your credit card Tell me your credit card
numbernumber
Tell me your checking account Tell me your checking account ##
Tell me your Social Security #Tell me your Social Security #
Wire fees out of stateWire fees out of state
BEWAREBEWARE
Tell me your credit card Tell me your credit card numbernumber
Tell me your checking account Tell me your checking account ##
Tell me your Social Security #Tell me your Social Security #
Wire fees out of stateWire fees out of state
RememberRemember
Understand what you Understand what you sign.sign.
Don’t sign anything you Don’t sign anything you don’t agree to.*don’t agree to.*
Shop for the best deal Shop for the best deal available to you.available to you.
Keep your greed under Keep your greed under control.control.
Pay Off Loans EarlyPay Off Loans Early
10,000 12% 57 mo 210,000 12% 57 mo 2332 13,1672 13,167
Bal Rate Term Pmt Total Int Pd SavingsBal Rate Term Pmt Total Int Pd Savings (If simple interest)(If simple interest)
10,000 12% 60 mo 222 13,346 3,346 10,000 12% 60 mo 222 13,346 3,346
10,000 12% 47 mo 210,000 12% 47 mo 2772 12,5822 12,582 10,000 1210,000 12%% 38 mo 38 mo 3322 12,069 2,069 1,27722 12,069 2,069 1,277
3,167 1793,167 179
2,582 7642,582 764
If you pay as little as $10 extra principal each month, on such a loan as this, you If you pay as little as $10 extra principal each month, on such a loan as this, you can avoid paying the lender $179 (less interest). The more you pay, the quicker can avoid paying the lender $179 (less interest). The more you pay, the quicker you pay them off, and the less money you pay them. Make sure you make your you pay them off, and the less money you pay them. Make sure you make your extra principal payments in the manner your lender prescribes. extra principal payments in the manner your lender prescribes.
Pay Off Mortgage EarlyPay Off Mortgage Early
136,283 8% 10136,283 8% 101010 29 yr 349,056 29 yr 349,056
Bal Rate Pmt Term Tot Cost SavingsBal Rate Pmt Term Tot Cost Savings (360 mo)(360 mo)
136,283 8% 1000 30 yr 360,000 136,283 8% 1000 30 yr 360,000
136,283 8% 10136,283 8% 105050 25 yr 317,100 25 yr 317,100
136,283 136,283 7.757.75%% 1283 1283 1515 yr 234,360 98,077 125,640 yr 234,360 98,077 125,640
212,773 10,944212,773 10,944
223,717 223,717
180,817 42,900180,817 42,900
Bi-Weekly Payment Bi-Weekly Payment Programs:Programs:
A convenient way to A convenient way to
pay off early, pay off early, ifif::Your paydays are Bi-weekly Your paydays are Bi-weekly Your lender accepts extra principal Your lender accepts extra principal (most do w/o (most do w/o penalty)penalty)Reputable money handler Reputable money handler (some have skipped)(some have skipped)
Low or no fees Low or no fees
WarningWarning: : many charge amany charge a monthlymonthly service fee & set-up service fee & set-up fee fee!! $ 5 bw service fee $ 5 bw service fee $ 150 setup$ 150 setup $25 bw service fee $25 bw service fee $ $ 4,0004,000 setup setup
2626.08929.08929 half payments half payments
1313.04464.04464 full payments full payments in an average yearin an average year
The Advantage ofThe Advantage ofBi-Weekly Bi-Weekly PaymentsPayments::Since there are 365 1/4 days in an average year, and 14 days in each bi-weekly period:
365365 1/4 1/4 1414 = = 26.26.0892908929
there are there are 2626..08929 08929 biweekly periods biweekly periods each year.each year.
About once every About once every 1111 years yearsa person paying 1/2 of his monthly payment bi-a person paying 1/2 of his monthly payment bi-
weekly makes the equivalent ofweekly makes the equivalent of
13 1/213 1/2 monthly paymentsmonthly payments
(by making 27 half pmts bi-weekly)(by making 27 half pmts bi-weekly) Every ~11 years 3 months have 3 bw paydays Every ~11 years 3 months have 3 bw paydays
(3 extra paydays -> 1 ½* extra full payments) (3 extra paydays -> 1 ½* extra full payments)
*Since making 1/2 of the required monthly payment bi-weekly yields 26.08929 half *Since making 1/2 of the required monthly payment bi-weekly yields 26.08929 half payments in an average year, every 11.19946 years (average) an third bi-weekly payments in an average year, every 11.19946 years (average) an third bi-weekly period would occur. 1 (bi-weekly period) ÷ .08929 (average extra bw payment per period would occur. 1 (bi-weekly period) ÷ .08929 (average extra bw payment per yr) = 11.19946 (average years).yr) = 11.19946 (average years).
Pay Pay 1.091.09 x 733.77 = x 733.77 = 799.81799.811.09 =1.09 = 1/12 of 13.05 1/12 of 13.05 pmts pmts
Compare the advantage of extra principal payments on a loan with these terms:Compare the advantage of extra principal payments on a loan with these terms: Loan Rate PmtLoan Rate Pmt Term Total Paid Term Total Paid
Extra Principal: Extra Principal: Bi-Weekly or Bi-Weekly or MonthlyMonthly
Extra Principal bi-weekly: If 1/2 of therequired monthly payment is paid bi-weekly:
26.09 half pmts are made each year, or
13.05 full payments each year (rounded).
Mo. pmt 733.77 ÷ 2 = 366.89 bi-weekly
22.65 yrs22.65 yrs
22.522.5 yrs yrs48,2048,20
99
216,832216,832
215,948215,948
47,3247,3255
Save
66.04 additional principal66.04 additional principal
100,000 8% 733.77 mo100,000 8% 733.77 mo 30 yr 264,157 30 yr 264,157
(by paying 17,000 early, you avoid paying $47,325 of interest)
To gain the same advantage:
Extra Principal Monthly
Mortgage bal. $ 87,724 734 pmt 8Mortgage bal. $ 87,724 734 pmt 8% 20 yr remaining% 20 yr remaining Car bal. 13,056 415 pmt 9Car bal. 13,056 415 pmt 9% 3 yr remaining% 3 yr remaining Other Other 8,0008,000 203203 pmt 18 pmt 18% 5 yr remaining% 5 yr remaining Total 108,780 1,352Total 108,780 1,352
Re-finance and “save” Re-finance and “save” hundredshundreds
each month each month (100,000 30 yr 8% loan after 10 (100,000 30 yr 8% loan after 10
years)years)Many lenders encourage borrowers to refinance. If the goal is to reduce monthly payments, a refinance may work Many lenders encourage borrowers to refinance. If the goal is to reduce monthly payments, a refinance may work just fine. If the goal is to pay less total interest, it may be better not to refinance, unless you refinance and keep just fine. If the goal is to pay less total interest, it may be better not to refinance, unless you refinance and keep
paying the old payment.paying the old payment.
Consolidated 111,780 Consolidated 111,780 782782 pmt 7.5 pmt 7.5% 30 yrs% 30 yrs
you “save” you “save” (avoid spending)(avoid spending) 493 per month 493 per month
Int.Int. if paid as if paid as
agreedagreed
95,00095,000
if you keep paying if you keep paying 1,3521,352 (117 mo)(117 mo) 9.75 yrs 9.75 yrs
Int.Int. & &
feesfees 173,000173,000
Great, if you keep paying the higher payment, and don’t run Great, if you keep paying the higher payment, and don’t run up your credit cards, etc. again!up your credit cards, etc. again!
Int. Int. && feesfees50,00050,000
50,7550,7566 if keep if keep paying 1352 paying 1352 no refino refi
After 1 year
New New New
Bal. Pmt. Term
77,554 651 21.9
8,072 250 3.1
4,126 150 2.6
6,253 120 8.5
0 0 0
794 90 .8
Getting out of debt quicker, by focusing Getting out of debt quicker, by focusing first on highest rate debtsfirst on highest rate debts
Let’s suppose someone had
the following debts. They
could meet the payments, but
with no money to spare:
Existing Balance Payment Rate RemainingObligations (p & i*) Term (yrs.)
1st Mort 78,721 651 8.5% 22.9 yrs.
Auto Loan 10,239 250 9.0% 4.1 yrs.
Trailer 5,451 150 9.8% 3.6 yrs.
Credit Card 6,539 120 18.0% 9.5 yrs.
Doctor 400 40 21.0% .9 yrs.
Dentist 1,200 50 19.0% 2.5 yrs.
Totals 102,550 1331 (*p&i stands for principal & interest)
After 1 yr., start applying the amount formerly going to the doctor ($40) to the next highest rate debt (the dentist). After 1.8 years
New New New
Bal. Pmt. Term
76,547 651 21.1
6,194 250 2.3
2,970 150 1.8
5,984 210 3.1
0 0 0
0 0 0
After .8 yr. more, apply the amount formerly going to the doctor ($40) and to the dentist ($50) to the next highest rate debt (the credit card).
After 3.7 years
New New New
Bal. Pmt. Term
73,863 651 19.2
1,153 250 .4
0 0 0
2,745 360 .7
0 0 0
0 0 0
Getting out of debt quicker, by focusing Getting out of debt quicker, by focusing first on highest rate debtsfirst on highest rate debts
Let’s suppose someone had
the following debts. They
could meet the payments, but
with no money to spare:
Existing Balance Payment Rate RemainingObligations (p & i) Term
1st Mort 78,721 651 8.5% 22.9 yrs.
Auto Loan 10,239 250 9.0% 4.1 yrs.
Trailer 5,451 150 9.8% 3.6 yrs.
Credit Card 6,539 120 18.0% 9.5 yrs.
Doctor 400 40 21.0% .9 yrs.
Dentist 1,200 50 19.0% 2.5 yrs.
Totals 102,550 1331
After 1.9 more yrs, by applying the amounts formerly going to the doctor, dentist to the credit card, the new terms:
After 4.4 years
New New New
Bal. Pmt. Term
72,760 1,261 6.2
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
Out of debt in 10.2Out of debt in 10.2 yrs.
After .7 yr. more, applying the amounts formerly going to the doctor, the dentist, the credit card, trailer & auto loan to the mortgage loan.
Under water?Under water?
Mortgage 7% 600Mortgage 7% 600 Auto loan 10% 250Auto loan 10% 250 Cr Card 19% 100Cr Card 19% 100 Cr Card 25% 150Cr Card 25% 150 DoctorDoctor 18% 200 18% 200 DentistDentist 18% 100 18% 100 1,4001,400
7% 7% 10%10% 10%10% 25%25% 10%10% 18%18%
600600 250250 8080 150150 120120 100100 1,2001,200
Some lenders will reduce their interest rates if you ask - especially if Some lenders will reduce their interest rates if you ask - especially if you indicate that you are shopping around for better rates.you indicate that you are shopping around for better rates.
