Homework Passport page 38 Welcome Paying Down Debt Debt Snowball Predatory Lending Trap Types of Predatory Loans Payday Loans Refund Anticipation Loans Car Title Loans RenttoOwn Contracts ID: 445537
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Slide1
Credit ~ Next StepsSlide2
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 Slide3
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?Slide4
What Do You Know?
Pre-Test from Participant’s Guide
1. Problems with predatory loans can include: (Select all that apply)
High annual percentage rate (APR)
High fees
The need to pay off the loan in a short time period
Puts the collateral (asset used to obtain the loan) at risk
2
. Paying the minimum payment on a credit card every month will
:
pay a large percentage of the total balance owed every month
mean that the final amount paid is much higher than the initial
cost
allow the cardholder to avoid paying any interest charges
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?
Payday lender
Cash- advance lender
Credit Union or Bank
Car Title lender Slide5
What Do You Know?
Pre-Test from Participant’s Guide
4.
Before accepting a loan you should
: (
Select all that apply).
Consider whether the item is a need or a
want
Make sure you can afford the loan
Check to make sure the loan provider is reputable
Obtain loan quotes from other lenders
then compare
all terms and
conditions
What is the most important step to paying off debt?
Refinancing
for a better interest rate
Stop creating new debt
Pay off debt before saving money
Paying off the lowest balance first
Slide6
What Do You Know?
Pre-Test from Participant’s Guide
1. Problems with predatory loans can include: (Select all that apply)
High annual percentage rate (APR)
High fees
The need to pay off the loan in a short time period
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 BankSlide7
What Do You Know?
Pre-Test from Participant’s Guide
4.
Before accepting a loan you should
: (
Select all that apply).
Consider whether the item is a need or a want
Make sure you can afford the loan
Check to make sure the loan provider is reputable
Obtain loan quotes from other lenders than compare all terms and conditions
What is the most important step to paying off debt?
b) Stop creating new debt
Slide8
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?Slide9
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
Slide10
Making Wise Credit Decisions
Is the item a want or a need?
If a needWhat 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)
Slide11
Assessing Cost of Credit:
Truth in LendingSlide12
Sources for funds
Relative, Friend,
Religious institution
Bank/Credit Union
Refinance with creditor
Savings
Salary Advance
Cash advance
on credit card
Social Service Agency
211 VirginiaSlide13
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 Slide14
What is Predatory Lending?
Deceptive
Fraudulent
Preys on the vulnerable
Targets lower-income
& minorities
wreaks havoc
High costSlide15
Predatory Loans
Car Title Loans
Rent-to-Own
Contracts
Payday Loans
Tax Refund
Anticipation Loans
Cash-Advance Loan
Pawn Loan
Buy Here/Pay HereSlide16
.Slide17
.
Slide18
.Slide19
Other High Cost SourcesSlide20
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 feesSlide21
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 of10
% if less than 59½ years oldSlide22
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.
Slide23
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
Lori :Mortgage-You mentioned Up Center/ Jewish Family Services
- not listed in Bank On Resource GuideSlide24
Effect of Minimum Payments
Card
Balance
Interest
Rate
Minimum Payment
Total Payment
Total Interest
Payment Time
$5,000
15%
$150
$6,508
$1,508
3 years
8 months
$5,000
25%
$150
$8,625
$3,625
4 years
10months
powerpay.orgSlide25
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
freeSlide26
Debt Snowball:
www.powerpay.org
Creditor Name
Balance
Minimum
Payment
Interest 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
Example: An Individual who can pay $100 per month more than the minimum balance on the credit cards and monthly amounts on revolving credit. Slide27
Debt Snowball: Payment PlanSlide28
Powerpay Results
Without Snowball
With Snowball
Payment
$591.41
$691.41
Total Repaid
$10,779.14
$10,350.60
Total Interest
$932.99
$504.45
Time in Debt
4 years
0
months
1 year
3 months
Time Saved
2 years 9 months
$$
Saved
$428.54
Total Debt $9,84614Slide29
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.orgSlide30
What Have You
Learned?
(Post-Test)Slide31
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 debtSlide32
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
What is true about predatory lending? (Select all that apply)
The lender approves a loan based on your credit score
The lender reports payments to credit reporting agencies
The company is deceptive in its advertising
APRs are less than traditional lendersSlide33
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 debtTo be successful in reducing your debt, you should have a monthly spending planSlide34
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
What is true about predatory lending? (Select all that apply)
The lender approves a loan based on your credit score
The lender reports payments to credit reporting agencies
The company is deceptive in its advertising
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.Slide35
Assignment Today’s Lesson
(Financial Empowerment Passport)
Review Affordable Housing Guide
Obtain a Copy of your ChexSystems 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 Slide36
Questions?