Using Credit Wisely,Avoiding Debt
What to look for, and what to consider!
Credit Statistics
40% of credit card holders carry balances less than 1,000…15% carry balances more than 10,000!
Credit Statistics
48% of consumers individually carry less than 5,000 dollars in debt, NOT including mortgage loans.
Credit Statistics
The average consumer has nearly 17,000 available to them at anytime on credit cards
Credit CAN help with your financial goals if…You identify your goal clearly,
“what do I want to buy with my credit?”
Gather information, “what are the credit terms, interest rate, length of time to pay off, minimum payment?”
Credit CAN help with your financial goals if…Examine alternatives, how
long would it take to save money and purchase, how much would you have to save each month, could you invest the money and reach your goal sooner?”
Credit CAN help with your financial goals if…Analyze outcomes, “do you
need the item right now, or can it wait, how will either option affect your budget and saving?”
Credit CAN help with your financial goals if…Make a decision, is credit the
BEST option for you in this place and time?”
Credit CAN help with your financial goals if…Evaluate you results; in
hindsight, did using credit or not using credit helped or hurt your situation; would you make the same decision again?
70-20-10 Rule:
It is generally agreed that you can keep your debt in check by dividing up your financial plan this way:
70% for living expenses20% for saving and investing10% for paying off your debt
Things to remember…
The higher the interest on your debt, the LONGER it will take to pay off
Making the minimum payment raises the cost of your purchases
Charging small “everyday” items will come back to haunt you!
Having too much available credit makes you look risky
Avoiding Pitfalls:
Read the fine print on ALL your credit applications, KNOW what you are getting involved in financially
Pay your bills early if you can; this way you will not have late payments
SAVE, SAVE, SAVE!!!
Record Keeping…
Holding onto receipts and financial papers will allow you to be aware of your current situation and if need be produce proof of purchases in case there is an issue.
I am in debt; what should I do?Put away the plastic, only use
cashMake a commitment to pay
all your debtsDon’t hide from your debt,
know how “bad” it is…Create a repayment plan
The Total Affects of Debt
FinancialEmotionalPhysicalSocial
Last Resort
Bankruptcy: a legal option for getting out of debt
Chapter 7-erasing most of your debt, easiest if you are unemployed or have little income.
Chapter 13- consolidates and takes the interest off your debt, still repay over time
Both of these options will cause you to have a 7-10 year period of financial hardship
Maxim: order of paying off debt Pay off the debt with the
highest interest firstOnce you have paid off your
first debt use that money to pay off your next obligation
This will snowball and pay your debt off faster!
Page 56 Exercise 4G
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