Credit Use & Debt Reduction with Power Pay

Report
Credit Use
&
Debt Reduction
with Power Pay
Florida Saves 2020
“See Your Future Clearly”
What is Credit?
• Commits future assets or income to pay for
something today
• You get cash, goods, or services now, and
then pay for it later.
• Installment vs. Open-ended/Revolving
Pros and Cons to Using Credit
• Advantages
• Disadvantages
Credit Cards
• The National Average on accounts assessed
interest was 13.67% (Federal Reserve, 2011)
• Credit card statement
–
–
–
–
–
–
–
–
Previous balance
Purchases
Cash advances
Payments
Finance charge
New balance
Minimum payment due and Deadline
Time to payoff the balance if only paying the minimum
The Credit Score
• Summarizes your creditworthiness based
on your credit report
• Married couples have separate scores
• Impossible to have a perfect score unless
you’ve had an account open for at least 15
years.
FICO SCORES
•FICO scores provide a guide to future risk based on credit report data
•The assumption = the higher the credit score, the lower the risk
Requests for new
credit
10%
10%
35%
15%
30%
Types of credit in
use
Length of credit
history
Current total debt
Payment History
Fair Isaac Corp. – www.myfico.com
Where do Floridians Fall?
Florida’s Average
Credit Score
The National
Average
Credit Score
As of 02/10/2010
Cost of Borrowing
FICO
SCORE
The Difference Your Score
Makes
760-850
save an extra $36,626
700-759
save an extra $23,526
680-699
save an extra $12,905
660-679
640-659
PAY an extra $26,430
620-639
PAY an extra $60,789
Florida’s Average
Credit Score
The Importance of
a Positive Credit History
• Ability to gain employment
• Cost of Borrowing
– Lower Interest Rates
– Ability to get different types of loans
• Renting
• Utility and cable companies may check to
start an account
The Cost of Credit Score
Taking out a Home Mortgage of $200,000 for 30 years
Credit
Score
Monthly
Additional
Difference
Payment
30 yr Cost
Best
$1055
0
option
APR
760-850
4.843
700-759
5.063
$1081
$26
$9360
680-699
5.239
$1103
$48
$17,200
660-679
640-659
5.452
5.880
$1130
$1184
$75
$129
$27,000
$46,440
620-639
6.423
$1254
$199
$71,640
Report vs. Score
• Reports are based on
information obtained by:
– TransUnion, Experian,
and Equifax from your
lenders
– The data is used for the
scores
• Scores created by
FICO from reporting
agency information
– It is lowered with:
• Late payments
• Reaching/Exceeding
Limit
• High Debt to Income
Ratio
• New Credit Requests
New Legislation—
More accessible Credit Scores
• Jan. 1, 2011—Risk Based Pricing
Legislation
• New disclosure rules regarding credit
reports & scores.
• Requires lender to provide applicant with
credit score used to determine rate
How To Obtain Credit Report
To request your free credit report go to
annualcreditreport.com or call 1-877-322-8228
• Complete the request form and mail to:
Annual Credit Report Request
Service
P.O. Box 105281
Atlanta, GA 30348-5281
How to Systematically
Reduce Debt
Six Step Process
Step 1: Stop Using Credit
• Stop
– Charging new items
• Increases what you owe!
– Taking on additional credit
Step 2: Assess the Problem
• Understand what happened
–
–
–
–
–
–
–
–
–
–
Job loss?
Didn’t get pay raise?
House/apartment you can’t afford?
Health crisis?
No savings?
Divorce?
Spending problem?
Expect security from wrong sources
Failed communication
Take care of others
Step 3: Break Your Challenge Into
Manageable Steps
• Define your goal:
– Specific - $10 a day
– Time frame - 3 to 5 years
– Measurable - Your debt balance
Pay off $8000 credit card in 3 years by paying $300
per month ($10 per day saved from eating out)
Step 3: Break Your Challenge
Into Manageable Steps
Debt Free in Three Years
Debt
amount
12%
interest
18%
interest
24%
interest
$ 8,000
$9/day
$10/day
$11/day
$12,000
$13/day
$15/day
$16/day
$16,000
$18/day
$19/day
$21/day
$20,000
$22/day
$24/day
$26/day
Step 4: Track Your Spending
•
•
•
•
•
•
Receipt
Envelope
Calendar
Notebook
Checkbook
Computer
Step 5: Find the Money
•
•
•
•
•
•
•
•
•
•
Change your withholding
Reduce your interest rates
Advance Earned Income Credit
Overtime
Second job
Break costly habits
Look for ways to reduce flexible expenses.
Examine ways to restructure or cut fixed expenses.
Overtime or extra job
Managing in Tough Times
Step 6: Fix Debt Problems
Debt Repayment Plan Methods
•
•
•
•
•
Importance
High interest rate
Low balance
Debt consolidation
Negotiate and pay-off
Step 6: Fix Debt Problems
with
• Free service online
• Compares all previous
methods
• Time-line printed
www.powerpay.org
Click Florida
Enter an Account
Click Here When Finished
Click Here to See Savings
Without Power Payments
Payment Calendar
Click Here for Repayment Method
To Pay Extra or
Schedule Extra
Payments
What will Improve the Score?
• No quick fixes – time is the factor
• Use your credit but perhaps only use on specific
purchases
• Pay your bill on time, every time, for the full
amount.
• Keep balances low on credit cards (i.e. zero)
• Pay off high interest first and fast
How Do I Stop Getting Offers!
Tired of unsolicited credit and insurance mail?
• You may request that consumer credit reporting
companies exclude your name from lists for preapproved, unsolicited credit and insurance offers.
• To find out more, please call
1–888–5OPTOUT (1–888–567–8688).
Correcting Credit Report Errors
• Get a copy of your credit report, verify information.
• Highlight the error's
• Write a letter of dispute that includes an explanation of
the error's
• Locate and copy
– any additional information that can help establish that the item is
an error
• Send to the credit reporting agency
– highlighted copy of your credit report,
– your letter of dispute,
– and a copy of any additional information
After You Dispute
the Information
• Ensure that the error is fixed
• Your score will be affected if it stays on the
report
• If you cannot resolve a disputed item:
– You have the right to attach a 100-word statement,
– Explaining the nature of your disagreement free of
charge
– Statement will become part of your credit file
– It will be included each time your credit file is
accessed.
Take Home Message
•
•
•
•
•
•
Be responsible with credit
Self control
Protect yourself
Check credit report frequently
Pay more than the minimum
Be careful of debt consolidation & credit
repair companies

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