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
10%
10%
15%
30%
35%
Requests for newcredit
Types of credit inuse
Length of credithistory
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 ScoreTaking out a Home Mortgage of $200,000 for 30 years
Credit Score
APRMonthly Payment
DifferenceAdditional 30 yr Cost
760-850 4.843 $1055 0Best
option
700-759 5.063 $1081 $26 $9360
680-699 5.239 $1103 $48 $17,200
660-679 5.452 $1130 $75 $27,000
640-659 5.880 $1184 $129 $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 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
Debt Free in Three Years
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
• Importance
• High interest rate
• Low balance
• Debt consolidation
• Negotiate and pay-off
Debt Repayment Plan Methods
Step 6: Fix Debt Problems
• Free service online• Compares all previous
methods• Time-line printed
with
www.powerpay.org
Click Florida
Enter an Account
Click Here When Finished
Click Here to See Savings
Without Power Payments
Click Here for Repayment Method
Payment Calendar
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 pre-approved, 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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