Post on 14-Sep-2020
FASFAA Graduate & Professional Initiatives Committee
Sometimes money can be a means to a beginning
FASFAA Graduate & Professional Initiatives Committee
Give Yourself Credit
Using credit to your advantage
FASFAA Graduate & Professional Initiatives Committee
Could this be you?
•Your computer just broke down•You want to go to graduate school•You need a new car•You want to live in an apartment off campus
FASFAA Graduate & Professional Initiatives Committee
Knowing what’s what about credit.
•Different kinds of credit•Costs of credit•Building credit history•Developing a credit strategy•Managing credit wisely
FASFAA Graduate & Professional Initiatives Committee
Credit puts power in the right hands. Yours.
•Make time-sensitive purchases•Buy big ticket items•Pay for major expenses•Make certain purchases and agreements possible•Meet emergency expenses
FASFAA Graduate & Professional Initiatives Committee
So what is credit, really?
A person or company lends you money and trusts you will repay.•Credit: amount you’re approved to use•Debt: amount you owe•Creditor: person or company to whom dept is owed.
You repay principal plus interest over time
FASFAA Graduate & Professional Initiatives Committee
Secured vs. unsecured credit.
Secured Credit Unsecured CreditLeverages collateral for the No collateralpurpose of:•Obtaining higher loan/line amounts•Establishing credit history
FASFAA Graduate & Professional Initiatives Committee
Credit comes in several flavors.
Loans (Closed End) Lines (Revolving)- Entire amount provided upfront - Use credit as needed- Fixed monthly payments - Payments based on use- Set time to repay - Time to repay flexible- Fixed and variable interest - Usually variable interest
Examples: Example:Car loans, mortgages Credit cards
FASFAA Graduate & Professional Initiatives Committee
Determining the cost of a loan.
ANNUAL INTEREST
+
FEES AND CHARGES
= ANNUAL PERCENTAGE OF RATE (APR)
FASFAA Graduate & Professional Initiatives Committee
Determining the cost of a line.
Total cost depends on- Type of line- Amount used- When you pay
Cost includes- APR: interest on what you owe- Annual fees- Finance charges- Late charges- Cash advance fees
FASFAA Graduate & Professional Initiatives Committee
More breathing room.
Works for bills, too.
FASFAA Graduate & Professional Initiatives Committee
Credit is like a muscle.You can build it up.
•Start with what you can handle.
•Develop what you’ve attained.
•Once in good shape, you can take on more.
FASFAA Graduate & Professional Initiatives Committee
Where to find the best credit manager:In the mirror.
You are responsible for the quality of your credit.
•Pay on time, avoid late fees•Pay more than the minimum due, if possible•Use cash advances only for emergencies•Borrow only what you can afford
FASFAA Graduate & Professional Initiatives Committee
Good credit pays off.
•Helps you get credit in the future
•May qualify you for lower rates
•Frees up money for other things
•Gives you peace of mind
FASFAA Graduate & Professional Initiatives Committee
Credit reports paint your financial picture.
Credit reporting agencies track credit use and payment history.•Compile reports and scores•Sell to lenders, landlords and others
Lenders use credit reports and credit scores to help determine:•Whether to extend credit•Amount or limit•Rates
FASFAA Graduate & Professional Initiatives Committee
Develop a credit strategy.
•Decide when to borrow
•Review your budget
•Determine right type of credit
•Continually monitor your overall credit position
FASFAA Graduate & Professional Initiatives Committee
When does borrowing make sense?
When you…
•Know you can pay it back
•Need to buy before money is available
•Can get a better price by buying now
•Want to stretch payments over time
FASFAA Graduate & Professional Initiatives Committee
Lift only what you can carry.
Good advice for credit, too.
FASFAA Graduate & Professional Initiatives Committee
How much credit should you have?Let your budget decide.
•How much do you need?
•Do payments fit into your budget?
•How much can you afford to borrow?
•Is the term right for you?
FASFAA Graduate & Professional Initiatives Committee
Okay, what kind of credit is right for you?
Fixed loan or revolving line?
Secured or unsecured?
FASFAA Graduate & Professional Initiatives Committee
Stay on top of your credit.
Review credit reports at least once a yearwww.annualcreditreport.com1-877-322-8228
Keep track of all outstanding credit balances
Look for opportunities to reduce the amount of interestyou’re paying
FASFAA Graduate & Professional Initiatives Committee
Paying with a loan.
Here’s an example: Kim needs $5,000 for new appliances.
•She can afford to pay $200 per month
•Applies for: $5,000 personal unsecured loan
•Monthly payment: $166.07
•Time to repay: 3 years @ 12% APR (for example)
FASFAA Graduate & Professional Initiatives Committee
Paying with a line.
Kim has an emergency. She needs $5,000 to fix a leaky roof.
•Charges $5,000 to her credit card.
•Minimum monthly payment: $100*
•Time to repay: 7 years and 9 months (only paying the minimum)
*Based on an 18% fixed APR
FASFAA Graduate & Professional Initiatives Committee
Consider ways to manage debt.
-Lower the cost of credit - Make accelerated payment
-Simplify debt repayment - Consolidate debt and pay one bill
-Reduce monthly payments - Get consolidated loan that fits budget
FASFAA Graduate & Professional Initiatives Committee
Benefits of accelerating loan payments.
Product: 30 year mortgageBalance: $200,000
Paying the minimum•Monthly payment: $1, 199*•Time: 30 years•Interest paid: $231,676*
*Based on a 6% APR
One Extra payment per yearAdditional payment: $1,199Time: 24 years, 9 monthsInterest paid: $184,395*
Savings in interest: $47,281Savings in time: 5 years, 3 months
FASFAA Graduate & Professional Initiatives Committee
Benefits of accelerating line payments.
Credit card balance: $8,000Assumption: No additional balance
Paying the minimum•Payment: $125 per month*•Time: 14 years•Interest Paid: $13,074**Based on a 17% APR
Paying $75 over the minimum•Payment: $200 per month•Time: 5 years•Interest Paid: $3,890*
Savings in interest: $9,184Savings in time: 9 years
FASFAA Graduate & Professional Initiatives Committee
Debt benefits from togetherness: Consolidate
Current Debt Balance Minimum Monthly Payment
Credit Card $8,500 $255
Store installment plan $7,000 $358
Personal loan $3,000 $ 90
Total $18,500 $703
New unsecured consolidation loan*
$18,500 $412
*Assumes 12% fixed rate paid over 5 years YOU SAVE $291
PER MONTH
FASFAA Graduate & Professional Initiatives Committee
Constantly strengthen your credit situation.
•Apply only for what you can manage
•Build credit with appropriate products
•Always pay on time
•Limit use of credit if debt increases
•Seek help if you’re struggling with debt
FASFAA Graduate & Professional Initiatives Committee
Credit can be your friend. Really.
The benefits of credit•Offers convenience•Lets you do more with what you have
The importance of a credit plan•Reduces worries•Keeps debt manageable•Makes credit work for you, not against you
FASFAA Graduate & Professional Initiatives Committee
Knowledge is good.
When put to work, even better.
FASFAA Graduate & Professional Initiatives Committee
Now is the Time to Act
Get on track to obtain credit
Meet with someone to discuss how credit can work for you
Schedule an appointment today