How Credit Works Against Me

Citizens For Responsible Lendingwww.citizensforresponsiblelending.org

How Credit Works Against How Credit Works Against MeMe

Think of credit like Warfarin. When needed,

a little thins your blood and will save your

life.

But just a little too much can kill you.

How Credit Works Against How Credit Works Against MeMe

Credit is appealing because of our generally

optimistic nature. We believe that in the

near future our income will increase and

expenses will decrease.

Unfortunately life seldom works out the way

we optimistically believe it will.

How Credit Works Against How Credit Works Against MeMe

Credit works against me by

◦decreasing my checking account and savings

account balances more than I would have without

using the credit, and

◦also may reduce my equity.

Credit works against me when…

Repayment is larger than the amount I have available now

The amount I have to pay to the credit account is equal to

or greater than the amount of money I have available after I

pay my bills each month.

◦ This eliminates monthly deposit to checking and savings

◦ It takes money out of existing balances of checking and savings

◦ Unexpected expenses may result in late payment fees, reducing

available money even further

◦ May need to refinance credit at a higher rate plus additional loan

fees

◦ May have to take out home equity loan to cancel credit card loan

Credit works against me when…

I use Credit to buy more than I need

Buy a family pack of beef because it is on sale, then make larger

meals or more meals with beef

Buy a boat without budgeting for all the stuff that goes with it: gas,

equipment, and meals away from home

Buy a large gas grill and start eating steak three times a week

Buy a larger TV or other electronics when existing one still works

**None of these purchases will reduce my regular expenses**

Credit works against me when…

Credit wipes out the savings initially realized

The interest and fees on a credit account may result in paying

more than the retail price or wipe out the savings initially

realized

Buy something on sale but paying with a loan ends up being more than the

savings

◦ Buy a $6000 car (originally $6500) with 5-year loan at 6.5% interest = $7044

final cost for car

Buy something on a credit card ends up costing more than the original retail price

◦ Buy a $1500 TV on the store credit card (20% interest rate), take 12 months to

pay off TV = $1667.40 final cost for the TV

Buy anything on a “same as cash” interest-free loan BUT miss payments, causing

late fees and higher interest rate charged

Who do I get credit Who do I get credit from?from?

Every time I get a product or service before it’s paid

for someone, somehow is using credit that I have to

pay for and usually at a high rate of interest.

Who do I get credit Who do I get credit from?from?

Financial cards

Credit Card (even when paid in full

when the bill comes)

◦ Credit card with 5% off your first

purchase

◦ Credit card with 2 years with no

interest

◦ Credit card with 5% cash back on

every purchase

Debit Card

Store offers

No money down

No money down, 2 years to pay

No interest and 2 years to pay

(“same as cash”)

How Credit Works Against How Credit Works Against MeMeRecapRecap

Credit is like Warfarin: it must be used wisely

Credit is used because of our optimistic nature

Credit works against me when:

◦ Repayment is larger than the amount I have available now

◦ I use Credit to buy more than I need

◦ Credit won’t reduce my regular expenses

◦ Credit wipes out the savings initially realized

Recognize who I get credit from

How Credit Works Against How Credit Works Against MeMe

Credit works against me by decreasing my checking

account and savings account balances more than I

would have without using credit and also may reduce

my equity.