Surveys show that only 12% of high school seniors learn about money management in school.
Historically, it has been up to parents to teach their children the skills needed.
Most of us learn these lessons the hard way after we’ve moved out on our own and made some mistakes.
Everything Begins with a Budget!
What is a Budget?
A budget (spending plan) is a plan to figure out
where your money goes before you get it.
Where to Begin When Creating a Budget:
How much do you earn?
How much do you spend?
Part time job
Rental, room & board received
Tax refund div. by 12 mos.
Support from family
Track All Your Sources of Income
Track Your Spending!
Track ALL spending for at least 90 days (Then make it a habit to track spending ALWAYS)
Write down even the smallest expenditure
Transfer expenses to a monthly tracking sheet to summarize and view by category
Fill in your Net income for each week at the top.
List what you are spending for each of the categories:
Food (both categories)
Savings - Emergency (10 – 15% of your Net monthly income)
Tracking Sheet for Monthly Expenses List your income and expenses in the week they are due Total your expenses for each week, then subtract from income
Housing (include utilities, taxes, insurance)
Food - groceries
Medical (co-pays, prescriptions)
Transportation (include car insurance, gas, oil, maintenance)
Child care, alimony, child support
Taxes – monthly payments from the prior year
Savings (3 – 6 months of your total monthly expenses saved in your emergency savings fund) PAY YOURSELF FIRST!
Personal care, clothing, jewelry
Entertainment (include cable TV!)
Credit Card Payments
Any Other Debt
Payments (e.g. medical bills or collections)
Adding It All Up
Now it’s time to put everything together and see whether your budget will work.
If you are saving for a goal, you should include your short, mid and long term goals with your expenses in your budget as well!
Total Necessary Expenses
+ Total Discretionary Expenses
+ Total Debt Payments
= Total Monthly Expenses
Now Let’s See if Your Budget Balances
Total Monthly Net Income
- Total Monthly Expenses
= Surplus (+) or Deficit (-)
If Your Expenses Exceed Your Income
Work to find solutions – self managed plan.
Credit counseling can help if you have high debt payments that are upsetting your budget.
Whatever you do, don’t cut into the 10% - 15% you should be saving; you need to save up to three – six total month’s of expenses to get through an emergency
Re-evaluate your budget periodically, especially when your income or needs change.
Self Managed Debt Repayment Plan
For credit cards, don’t just send the minimum monthly payment; if you do, you’ll be paying toward that debt for the next 30 years on the creditors plan!
For example, say you owe:
$6000 Divide by 48 months = $125 per month
Debt free in 4 years!
If that amount is too large for your budget, you can adjust the payoff term to something longer, like 5 years. (Then you’d only have to pay $100 per month.)
Whatever you do, though, don’t stretch out the payoff term so much that you’re just making minimum payments again. The key is to not charge any more on the existing debt and stick to Your plan!
Self Managed Debt Repayment Plan Strategies
Choose what best motivates and fits your goals:
Strategy 1: To see quick progress, pay off a small balance account and snowball payment into the next credit card; e.g. moving from owing five creditors to only four creditors is a good motivator.
Strategy 2: Trying to improve your credit scores. You’ll want to first pay down accounts with balances closest to their credit limits. That will improve your utilization ratio. (30% of your FICO score)
Strategy 3: Pay higher interest rates cards first to see less of your hard-earned money going towards finance charges.
Look for what fits and motivates you the most and then get going!
Let’s say the credit card has a 21% APR or interest rate
Divide the 21% APR by 365 days in the year = .0575%
This is the daily rate the creditor will charge you each day that you carry a balance on your purchases.
Example $500 balance x .0575% = $2.87
Day 1 $500 + 2.87 = new balance of $502.87
Day 2 $502.87 x .0575% = $2.89 $505.76
Day 3 $505.76 x .0575% = $2.90 $508.66
Day 4 $508.66 x .0575% = $2.92 $511.58
Day 5 $511.58 x .0575% = $2.94 $514.52
Day 6 $514.52 x .0575% = $2.96 $517.48
Day 7 $517.48 x .0575% = $2.98 $520.46
Day 8 $520.46 x .0575% = $2.99 $523.45
Each day for 28 or 30 days this goes on…
If you do not pay your entire (purchases) balance off before grace period (usually 20 days from billing) you will have to pay all this interest!
Types of Credit Card Ownership
Individual – only person liable for debt
Reports to credit report
Joint/Co-applicant – both liable for debt
Reports to both credit reports
Authorized User/Buyer – not liable for debt
Reports to credit report – is used in the scoring
Comparing Costs Institution Credit Card Type Purchase APR Fixed or Variable Annual Fee Purchase Late/ Overlimit Fee Purchase Grace Days Cash Advance APR Fixed or Variable Cash Advance Fee Rewards Program Rewards Program Fee Example: Bankcard Visa 18.24% Variable $0 $39 $35 20 days from billing 28.24% Variable 3%/$10 min Yes $20 Example: Bankcard Mastercard 9.00% Fixed $0 $39 $35 20 days from billing 28.24% Variable 3% No $0 Example: Bankcard Mastercard 0% for 1Year 12.99% Fixed $0 $39 $35 20 days from billing 22.99% Variable 3%/$10 min Yes $0
How Much Debt Can You Handle?
Experts say to keep your monthly consumer debt payments down to
around 10 – 15% of your total net monthly income.
The absolute maximum is 20%.
This includes payments due on credit cards, personal, school, and car
loans, but not first mortgages, home equity loans or rent.
If you are single: 20%
If you and your spouse work: 20%
If you have children: 15%
If you are retired and on fixed income: 10%
To calculate your monthly payments use Springboard’s financial tools http://www.credit.org/resources/Financial-Tools-Worksheets-Calculators/how_much_do_you_owe
High Cost of Ignoring Your Bills
Your creditors will charge late fees of $39 or less per month
Finance charges will continue on the balances of your accounts
The creditors will likely raise your annual percentage rate (APR) to approximately 33% because you have not honored your contract.
Once your balances exceed your credit limit, if you have not opted out, you will be charged an over the limit fee of $29 or more each month, and all that adds up.
How to Reduce Credit Card Debt
Find out how much you owe
Pay more than the minimum
Send your payment in as soon as bill arrives
Refuse your card issuer’s offer of a minimum payment of zero
Refuse your card issuer’s offer to skip a payment for a month
Consolidate your cards – between existing cards
Refinance your high rate card – ask your card issuer if they can lower your interest rate
Before You Swipe!!!
Ask yourself these important
Can I pay the entire purchase off in full when I get home? (online or over the phone)
If the answer is NO you may go to question 2
Can you pay the entire purchase off in full before your grace period ends (20 days from your billing date)
If the answer is no
Don’t swipe the card!!!
Understanding Your Credit Report & Score www.credit.org Promoting Financial Literacy
Our credit reports determine our access
Housing (Buying or Renting)
Unsecured credit lines (Credit Cards)
Insurance (for Home or Car)
Utility and Cell phone services
Credit History is Your Financial DNA
The importance of good credit
More employers are reviewing credit reports of prospective employees: Employment fields, such as financial services, gaming, military and law enforcement, continually monitor their employees’ credit reports.
Insurance companies review your credit report when you apply to insure you home and/or car.
Without good credit, it is very difficult to obtain a credit card, which is helpful if an emergency arises.
Many businesses prefer the use of credit cards.
What information is contained in my credit report?
How to Dispute Inaccuracies
Your Free Credit Report
You should review your credit reports at least once a year.
You are entitled to one free report from each bureau every 12 months from:
Scores are not free!
What Affects Your FICO Score?
Simple Ways to Improve Your Credit Score
Review credit reports regularly
Make your payments on time/pay
Set-up Payment reminders or automatic payments
Pay off unpaid debts -collections
Keep balances below 50% of line of credit or less (Lenders prefer 25% or less)
Keep old credit active – use the card at least once or twice a year to keep active
Demonstrate a mixture of credit: Revolving, installment, mortgage
What can you dispute?
Anything that is not yours (reported to the wrong credit report or id theft)
Anything that is reported inaccurately
Anything that is past the statute of limitations for reporting
Date Your Name Your Address Your City, State, Zip Code Complaint Department Name of Credit Bureau Address City, State, Zip Code Dear Sir or Madam: I am writing to dispute the following information in my file. The items I dispute also are encircled on the attached copy of the report I received. This item (identify item(s) disputed by name of source, such as creditors or tax court, and identify type of item, such as credit account, judgment, etc.) is (inaccurate or incomplete) because (describe what is inaccurate or incomplete and why). I am requesting that the item be deleted (or request another specific change) to correct the information. Enclosed are copies of (use this sentence if applicable and describe any enclosed documentation, such as payment records, court documents) supporting my position. Please reinvestigate this (these) matter(s) and (delete or correct) the disputed item(s) as soon as possible. Sincerely, Your name Enclosures: (List what you are enclosing)
Statute on Limitations for Reporting
Chapter 7, 11 or 12 bankruptcies 10 years from the date filed
Chapter 13 bankruptcy filings 7 years from date paid
Chapter 13 bankruptcy that is not completed 10 years
Bankruptcies voluntarily dismissed 7 years
Civil judgments 7 years from the date filed
Unpaid tax liens Indefinite
Paid tax liens 7 years from date paid
Collections paid or unpaid 7 years from date of the initial missed payment
Charge off accounts 7 years from date of the initial missed payment
Credit accounts 7 years from the date of initial missed payment
Inquiries 2 years
Basics of sending dispute letters
Some disputes may be done online, if unable
to, then follow these steps in writing:
Provide a copy of your photo id, social security card, and proof of address (such as a utility bill, pay stub or bank statement)
Provide copies of any documentation supporting your dispute
Keep originals send copies
Send all letters certified mail or return receipt
Keep a separate file for each of the credit reporting agencies