FINANCIAL LITERACY

DEBT

CREDIT

Credit is your ability to borrow money or

obtain goods by paying little or no

money at the time of purchase.

Having “credit” is a good thing.

DEBT

Debt is your obligation to repay money

borrowed or pay for goods obtained

previously without paying for them in full.

Debt should always be seen in a negative

light.

Not paying your debt on time and in full

may damage your credit.

INCREASE IN SALES

Retailers and

manufacturers discovered

that they could increase

sales by making easy

credit available and giving

it appealing names that

conceal the reality of debt.

NO MATTER HOW YOU DISGUISE IT . . . .

Rent-To-Own

Automobile

Leasing

Home Equity

Loans

0% Interest

No Payments Til . .

.

Pay-Day Advance

“Credit” Cards

Debt by any other name is still

“Debt.”

WHAT THE BIBLE SAYS . . .

Being in debt is not prohibited.

But, the Bible does not have one good thing

to say about borrowing.

All references speak of debt in a negative

context and most are in the form of

warnings.

WHY PEOPLE GET BURDENED BY DEBT . . . .

THINGS UNDER OUR

CONTROL

THINGS BEYOND OUR

CONTROL

THINGS BEYOND OUR CONTROL

“Acts of Nature”

Hurricane Charlie

Wild Fires &

Earthquakes

Accidents - Terri Schiavo

Sickness

Unemployment

Recession

THINGS WITHIN OUR CONTROL

Keeping Up With The

Jones

Unrealistic Expectations

Recreational Shopping

Makes You Feel In Control

Self – Esteem

Pick-Me-Up

Impulse Spending

NO SUCH THING AS “GOOD DEBT”

There is debt that may be “Necessary” for

most people to acquire things we consider

necessary or desirable (“Necessary Debt”).

But all debt (even Necessary Debt) should

be seen in a negative light.

“GOOD DEBT”

What we consider to be “Good Debt” is

debt that returns something of long term

value (e.g., a higher education or

home).

“BAD DEBT”

“Bad Debt” is debt incurred to acquire

things of a “short-term value.”

It “feel good” for a season.

Has no long-term value.

You really can’t afford it.

Don’t really need it.

DEBT MENTALITY

The Greatest Enemy of faithful stewardship

is consumer debt.

Raising your standard of

living by incurring consumer

debt may feel good for a

period of time - but the

burden of accumulated

consumer debt eventually

becomes overwhelming.

FOR EXAMPLE . . . .

In one year you will owe about

$ 2,600

If you accumulate $200 per month on credit

cards with a 15% interest rate,

In two years you will owe

about

$ 5,600

In three years you will owe

about

$ 9,000

In four years you will owe

about

$13,000

PLASTIC MONEY

TYPES OF PLASTIC MONEY

SMART

CARDS

CHARGE

CARDS

DEBIT CARDS

CREDIT

CARDS

SMART CARDS

A smart card, chip card or integrated circuit

card (ICC) has embedded integrated circuits

which can process data.

They store personal information and are used

for identification, authentication and data

storage.

They are a flexible and secure way to transact

business with minimal human involvement. May be “loaded” with a

certain dollar value that

can then be spent at Point

Of Sale terminals.

CHARGE CARDS

Must be paid in full every month

(AMEX).

Provide the convenience of not having

to pay cash for purchases, but balance

may not be carried over month-to-month

and must be paid in full each month.

Most store cards were originally Charge

Cards.

DEBIT CARDS

Allow access to your checking account at

automated teller machines (ATMs) and

point of sale (POS) terminals.

Amounts are

deducted directly from

your checking

account.

Unlike a charge card,

you must have the

funds on deposit in

your account.

The ones that causes problems are “Credit Cards.”

REVOLVING LOANS

Credit Cards offer a “revolving loan

account” with a credit limit.

If not paid-in-full

within a “grace

period,” interest is

charged on the

unpaid balance

and “rolled over” to

the next month.

TRAP FOR THE UNWARY

Undisciplined users are apt to

accumulate debts which they can’t

pay.

Young users (with limited credit

history and income) are charged

higher interest rates.

They are expensive if not paid-in-full

monthly.

FEES, FEES AND MORE FEES

“Interest rate” -- what you pay for using the

money - often 17% - 21% (after introductory

“teaser rate”).

“Over-the-Limit” fees, charged whenever you

exceed your credit limit.

“Late payment” fees.

“Transaction” fees – Cash Advances.

Other miscellaneous fees - read the fine

print!!!

CREDIT CARD POINTERS

DO’S . . .

Consider a debit card or pre-paid card.

Look for a card with no annual fee and

low interest rates.

Know your card’s hidden fees.

Pay on time - all the time!

Look for cards that offer premiums.

Pay-In-Full Monthly.

If you can’t pay in full, always pay more

than the minimum each month.

Minimum Repayment Schedule on a $2,000 Credit Card Loan at 19 Percent Monthly minimum payment amount

Number of months to repay

Total interest payment

$40 100 $1,994

$50 64 $1,193

$75 35 $619

$100 25 $424

Source: Credit Card Minimum Payment Interest Calculator, Daniel C. Peterson, www.webwinder.com

Interest savings between lowest/highest payment = $1,570;

time saved = 75 months or 6.25 years!

DON’TS . . .

Don’t get many credit cards.

Don’t use them for cash advances.

Don’t use them to pay for basics (rent,

groceries, etc) unless paid in full

monthly.

Don’t let issuer increase you credit limit.

Don’t charge more than you can pay off

in a month. If you do, have and stick to

a plan to pay it off quickly.

PAYING A CREDIT CARD BILL

Credit card bills are not considered paid

until the company credits payment to

your account.

To ensure payment is credited to the

account before it is due and that there

are no late fees:

Mail payments 7-10 days before the due

date.

Make electronic payment 2-3 days before

the due date

CREDIT CARD REGISTERS

Make a credit card register by cutting a

receipt to wrap around your credit card.

Record each purchase or cash advance

to the credit card, just as you would a

check in a check register.

Keep a running balance of what is

charged on your credit card each month.

Do not over spend your budget.

Check your record against your

statement.

SELECTING AND USING A CREDIT CARD

Shop-around! Study the details of the

application before signing. Look for the

fees charged including annual fee.

Understand the details of the introductory

offers and how long they last.

Know what constitutes a late payment

and the amount of penalties charged.

EXPOSING

EXEMPT ASSETS

TO UNSECURED DEBT

SECURING UNSECURED DEBT

If you have sufficient equity in your home,

it may be tempting to refinance high

interest consumer debt with a second

mortgage, to take advantage of a lower

interest rate and spread payment over a

longer period of time.

Think twice before doing so!

MEMORIES ARE SHORT

Instead of learning a lesson, many people

who do so begin to accumulate new credit

card debt almost immediately after

refinancing their old balance.

Without even realizing it is happening, in no

time, they have replaced their old credit card

balances with new ones, plus the second

mortgage.

EXPOSES EXEMPT ASSET

Credit card companies can’t collect yourcredit card debt out of your homestead.

In Florida, your homestead is exempt fromthe claims of most creditors – other that themortgage holder.

Refinancing has the effect of exposing yourotherwise exempt homestead to satisfydebts otherwise not be able to be satisfiedout of your homestead.

FLORIDA EXEMPTIONS

Assets That Are Exempt From Forced

Sale Vary From State-To-State

FLORIDA EXEMPTIONS

Homestead

Life Insurance (including cash values)

Alimony and Child Support Needed For Support

Damages for hazardous occupation Employee

injuries

Property of Business Partnerships

ERISA Qualified and Government Pensions

Certain Public Benefits

Up To $1,000 in Personal Property & Health Aids

Motor Vehicle up to $1,000.

Wages of Head of Household

EXEMPT HOMESTEAD

In Florida, the homestead is exempt from

forced sale without regard to value.

Homestead includes real or personal

property including mobile or modular home

(without limit of value).

The land cannot exceed ½ acre in

municipality or 160 contiguous acres

elsewhere.

EXEMPT INSURANCE

Annuity contract proceeds (not

including lottery winnings).

Death benefits payable to specific

beneficiary (not the bankrupt

deceased’s estate).

Disability or illness benefits.

Life insurance cash surrender value.

POWER POINT

If your out-go is more than

your in-come, your up-keep

will lead to your down-fall!