Docstoc

Certified Credit Counselor Exam Review

Document Sample
Certified Credit Counselor Exam Review Powered By Docstoc
					Keys to Success Online Review

Institute for Financial Counseling (IFC)
This online review was designed to compliment your Keys to Success manual. At the conclusion of each section are KEY WORDS. As many of these words are thoroughly explained in your manual, it is advised that you refer to your manual frequently during this course. If you need more time on a particular slide, simply click the pause button at the bottom of the page.
Institute for Financial Counseling

Contact: office@ifcinternational.org

Course Development:
John A. Aiello M.S. Andrew English Ph.D.

Overview of Content
Module 1: Defining the Role of the Financial Counselor  Module 2: Taking Control of Personal Finance  Module 3: Demystifying Consumer Credit  Module 4: Understanding and Dealing with Debt


Module 1
Defining the Role of the Financial Counselor

Module 1 Overview
The Components of Financial Well-Being  Establishing the Client/Counselor Relationship  Rapport Building  Active Listening  Asking the Right Questions


The Components of Financial Well-Being

Financial Health
Please complete the following: The Financial Health Checklist  The Money & You Assessment


Financial Well-Being Checklist
(Page 11 - Answer “Yes” or “No” for each of the following statements)
            


 

I prioritize to pay for the things I think are the most important. I am able to consistently save at least 5% of my income. Currently, I have adequate health, life, home, and auto insurance. I balance my checkbook every month. I am generous with my money. I consult with my spouse/partner before making charges. I am currently satisfied with my level of income. For the most part, I enjoy my job. Before I go shopping, I plan. I understand the terms and conditions of all my lending agreements. I have a good sense of my relationship with money. I establish short and long-term financial goals. I regularly monitor and adjust my financial goals to measure my level of success and to meet changing needs. I am informed about current issues, trends, and legislation that have or could have an impact on personal finances. I have a spending plan. I have a retirement plan. When I die, I know where my assets will go.

Money + You Self-Assessment
The following questions will get you thinking about your current relationship with the financial dimension of your life – see page 14!    



   

What level of income do you need to live the kind of life you imagine for yourself? Do you currently have that level of income? If not, what could you do to accomplish that goal? What do you think about credit cards? Do you feel they offer benefits to consumers? In your opinion, what is the number one cause of credit-card debt? Describe your family‘s money history. Were resources abundant or were times tough? Was money spent frivolously, miserly, or somewhere in between? How do you feel your family‘s money history has influenced the way you spend your money today? What do you spend most of your money on? Entertainment? Basic living? Are you a saver? Do you have money left over at the end of the month? Or do you just ―squeak by‖? Do you consider yourself to be generous? Is it easy for you to give? How do you feel about donating to charities?

Objective Measures of Financial Well-Being
A steady and adequate source of income A positive debt-to-income ratio Adequate cash flow to meet everyday expenses A good credit rating Adequate savings in case of emergency Adequate savings for retirement Adequate insurance to protect your health, property, and life  A spending plan in place and utilized  Identified short and long-term financial goals
      

Subjective Measures of Financial Well-Being
    

Happiness Sense of security Satisfaction with life Perception of success Positive money relationship

Establishing the Client/Counselor Relationship

Role of the counselor
Liaison between clients and lenders and other bill collectors  Facilitator for financial strategies  Prime directives are reducing client debt / helping client maintain a positive debt-toincome ratio  Most debtors are well-intentioned  Be professional and be yourself  If the client asks you personal questions, be honest and brief  Great counselors attend to their clients


Stages of Counseling
Rapport Building
Gathering Information Goal Setting Strategy Implementation Follow Up

Process and Outcome Goals
Process Goals
Universal goals of counseling

Outcome Goals
Goals specific to the client

Addresses client concerns
Ensures counseling as positive Responsibility of counselor Example: being non-judgmental Responsibility of client Example: decreasing level of debt

Human/Business Model





Outcome goal –positive debtto-income ratio Process goal – making sure the counseling process is positive Interactions and transactions take place simultaneously on two levels – the business level where goals are met and things actually get done – and the human level where our human needs are met. These include the need for attention, acceptance, and respect.

Rapport Building (page 25)
Three ingredients for establishing trust:
 Empathy - understanding what another person is going through. Sensitivity to others’ situation.  Genuineness - the quality of being yourself Conveying spontaneity and honesty.  Positive regard - showing respect and acceptance to the client. Giving affirmation.

You care + you can offer help = client trust.

5 Types of Communication (Page 19)
   



Social – salutations and “small talk” Persuasive - attempting to influence others Non-verbal - body language and facial expressions Expressive – communicates values attitudes, feelings, and other traits of our personality Cognitive - giving clients the information they need to know. Transmitting content or ideas

Barriers to Communication
Anxiety and self-centeredness  Interrupting needlessly  Hidden agendas  Overreacting to emotional words  Passing judgments  Stereotyping


Improving Communication
Adopt an accepting attitude Express yourself clearly Listen for total meaning Be physically attentive Observe non-verbal communication Share responsibility for communication Be expressive, be yourself Be assertive, not aggressive Avoid “you should” messages Show empathy

“I” Messages contain:
suggestions that are expressed in a nonjudgmental way  expected outcomes of an action taken  the speaker’s feelings or opinions  a positive solution or alternative


It’s All About TRUST!!
During the first few minutes of interaction with a client, demonstrate the following:
1.

Empathy - Try to understand what the client is going through. Show concern. Genuineness - Be yourself, be friendly, say what you mean. Positive regard - Be non-judgmental. Convey respect through both verbal and non-verbal behaviors.

2.

3.

Developing Empathy, Genuineness, & Positive Regard


Empathy
– – – – Increase awareness and sensitivity to cultural differences Demographic variables: age, sex Status variables: social, level of education Ethnographic variables: race, religion, culture



Genuineness
– Be consistent with what you say and how you feel – Be open to self-disclosure; answer personal questions – Be observant and spontaneous during session



Positive Regard
– Attend to client with verbal and non-verbal signals – Use enhancing statements

Active Listening ( Page 31)
There are 3 components of active listening:

Active Listening: Component 1

What You Do
Maintain an upright posture  Establish eye contact  Utilize appropriate facial expressions  Provide non-verbal feedback


Listening
Listening is a skill that must be developed whereas hearing is an involuntary act of the nervous system.  After a 10 minute speech, the average person remembers and understands only 50% over time.  Counselors listen not only to what is said but also how it is said.  Are you pre-occupied? See page 38!


Active Listening: Component 2

What You Say
Reflective listening is giving back to the client the message you received.  Non-reflective listening is attentive silence with short verbal responses that serve to encourage client communication.


Telecommunications
Greet the caller  Introduce yourself  Ask “How may I help you?”


You’re off to a good start!!!

Specific Techniques for

Reflective Listening

  

Paraphrasing - communicating back client messages in your own words Clarifying – asking to explain details you do not fully understand Summarizing – connecting segments of the conversation into a meaningful whole Reflecting Feelings – mirroring back the client‘s emotions and attitudes

Reflective Listening Exercise
Here is a little quiz intended to build your skill in applying the concepts just presented: A computer consultant, Jack Phillips, does work both for you and for another member of your department (Joyce Carton). One morning you walk up to Jack’s desk and he greets you as follows: Jack: ―What am I supposed to do about Joyce? She throws more work at me than I can possibly handle. I’ve told her but she won’t listen. I don’t want people to think I am trying to get out of doing my job, but she’s really got me totally buried.” Which of the possible responses listed below is a reflective listening response? Which ones are not?
     

Hang in there: I‘m sure it will work out eventually. I‘ll talk to Joyce about it. It sounds like this is really getting you down. You were discouraged when Joyce didn‘t listen? Why have you let things go on this long? You need to take some time off.

Examples of non-reflective listening responses
   

―All right‖ ―Please continue‖ ―Yes‖ ―I see‖

Notice how these responses are completely non-judgmental.
What are some examples of verbal behavior? See page 37!

Active Listening: Component 3

What you Observe
Counselors pay attention to what clients say and how they say it.  Verbal behaviors - tone, inflection, pace, sighing, crying, shouting  Non-verbal behaviors avoidance of eye contact, closed off posture, head shaking or nodding, nervousness, smiling


EXERCISE
Words to Describe Emotions
Happy Sad Angry Afraid Confused

Content
Elated Delighted Glad

Depressed
Dejected Despondent Glum

Furious
Irate Agitated Dismayed

Scared
Insecure Nervous Fearful

Conflicted
Troubled Undecided Lost

Satisfied


Hurt

Fuming

Unsure

Mixed up

Client emotions can be identified through verbal statements (what is said) and verbal behavior (how it is said). Let‘s start by identifying client emotions from what is said. Four clients will each make a verbal statement. For each space provided, think of a word to describe the emotion communicated. It is helpful to ask yourself: ―How would I feel in a similar circumstance?‖ You may use words from the list provided that describe common emotions or use your own descriptive words. Continue to next slide

EXERCISE


(Continued)

1) Sarah: ―My ex-husband thinks I‘m living high off the hog. Boy, if he only knew!‖ Emotions: _________________________________________________ 2) Al: ―I never thought I would even consider bankruptcy, but my credit is such a mess now anyway – what difference does it make?‖ Emotions: _________________________________________________ 3) Amy: ―Right now, I‘m working a lot of lunch shifts but I should get some weekend nights soon. There are people there that make two or three hundred dollars in a night!‖ Emotions: _________________________________________________ 4) Ray: ―Sometimes I think I‘m just not with it. Ever hear of the absentminded professor?‖ Emotions: _________________________________________________







Listening Skills Self-Assessment


Are you a good listener? Take the following self-assessment to find out. Rate each of the statements on a scale of 1 to 5.
1=Never
1 2 3 4 5 6

2=Rarely

3=Sometimes

4=Often

5=Very Often
1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5

7
8 9 10

I avoid staying on any one subject with others I make assumptions about other‘s feelings or thoughts I ignore another‘s view if I feel my way is the right way I bring up past issues during current disagreements I interrupt others conversations I use sarcasm or jokes to respond when others talk I respond to a complaint with a complaint I insult and criticize those I communicate with I can be very opinionated and defensive I see only my point of view

1 2 3 4 5
1 2 3 4 5 1 2 3 4 5 1 2 3 4 5

*If you scored in the range of 10-25 you are usually a very effective listener. *If you scored in the range of 26-50 you need to improve on yours kills and be aware where your weaknesses may lie.

Rapport Building & Listening Skills


Summary
– There are 3 components to active listening – what you do, what you say, and what you observe. – Effective counselors use both reflective and nonreflective listening responses to client communication. – Effective counselors convey empathy, genuineness, and positive regard to their clients.

Asking the Right Questions

Good Interviewers
    

Ask short, direct questions Ask one question at a time Wait for an answer Do not answer their own questions Are non-judgmental

2 Types of Questions
Use open-ended questions: – to ask for a statement of the problem – to explore alternatives to solving the problem – to refocus the client – to ask the client‘s opinion  Use closed-ended questions: – to obtain specific information – to ask to clarify a statement – to coordinate or schedule future plans


Open-ended questions


Open-ended questions are used for the following reasons:

1. To ask for a statement of the problem. For example: ―How may I help you?‖ ―What seems to be the problem?‖ 2. To explore alternatives to solving the problem. For example: ―How have you dealt with this before?‖ ―Have you thought about…?‖

Open-ended questions
3. To refocus the client back to the topic at hand. For example: ―Let‘s get back to your unsecured debt. What solutions have you sought out before?‖

4. To ask the client‘s opinion concerning an option or course of action. For example: ―How does that sound to you?‖ ―What do you think about this solution?‖ ―Who is your employer?‖

Closed-ended questions


Closed-ended questions are asked for the following reasons:

1. To obtain specific information. For example: ―Did you sign a lease?‖ ―Who is your employer?‖ 2. To ask the client to clarify a statement you did not fully understand. For example: ―I‘m not sure I understand. Are you saying you co-signed on the loan?‖ 3. To coordinate or schedule future plans. For example: ―Can you fax me your last billing statement?‖ ―Do you think you can call tomorrow with that information?‖

Module 1 Key Words


   

 

Active listening is a special form of undivided attention that counselors give to their clients. It is demonstrated through verbal and non-verbal techniques and behaviors. Congruence What effective counselors say and how they feel are the same. What you see is what you get. There are no mixed messages. Empathy is the ability to understand what another individual is going through. You relate to another‘s situation as if it were your own. Enhancing statements are those that comment on some positive aspect or attitude about the client. They provide encouragement or support to the client. The Human/Business Model is a way of looking at every day interactions as operating on two levels. The business level is where specific objectives are met. The human level is where an individual‘s needs are fulfilled. These include the need for attention, courteous treatment, respect, and acceptance. Genuineness is the quality of being yourself with the client. Clients need to know they are talking to another human being as well as a trained professional. Immediacy is sharing and responding to thoughts or feelings as they occur during the helping session. It is making room for spontaneous communication.

Module 1 Key Words




 







Financial counseling (as it is used throughout this material) refers to any counseling specific to personal financial management. This term is inclusive of credit counselors, or any other debt-related counseling. Financial well-being describes a state of satisfaction with personal finances. Objective measures of financial well-being include a steady source of income and adequate savings. Outcome goals are those goals that the client presents to the counselor. In the case of financial counseling, outcome goals involve personal finances. Positive regard refers to showing respect for the client as an individual with inherent value and dignity regardless of any external factors the client may demonstrate. Positive regard is giving affirmation to the client. Process goals work to create trust, respect, and rapport between client and counselor. When process goals are met, clients and counselors can collaborate productively to solve problems and discover opportunities. Reflective listening gives clients non-judgmental feedback through paraphrasing, summarizing, and responding to feelings. It also lets clients know that what they have communicated has been accurately and objectively understood. Self-disclosure helps to convey genuineness by being open to personal questions the client may ask. Effective counselors answer these types of questions directly and briefly.

Module 2
Taking Control of Personal Finances

Module 2 Overview
The Problem-Solving Process  Where the Client Is Now  Where the Client Wants To Go  How the Client Will Get There


The Problem-Solving Process

The Problem-Solving Process


Problem-Management/Opportunity-Development Model describes the helping process as managing problems more effectively and developing opportunities more fully. Benefits to financial counselors:

1. It is client-centered. Counselors facilitate clientdirected outcomes. 2. It is an open-systems model – inclusive of all approaches to counseling. 3. Compliments financial problem-solving managing problems (reducing debt) and developing opportunities (increasing income).

Problem solving is a natural process
People are naturally motivated to resolving issues, conflicts, and dilemmas. (Page 51)

7 Steps that occur naturally: 1. Awareness of the problem. Financial stress or dissatisfaction.

2. Problem creates urgency. Financial issues interfere with personal and business life. 3. The search begins. The individual starts to explore ways to resolve the problem or issue.

Natural problem-solving process (continued)
4.

5.

6.

7.

Decisions, decisions. The individual considers the consequences of the various alternatives. What if I did nothing? Possible solutions are weighed against simply ignoring the problem. I’ve made a decision! The individual makes an intellectual decision to follow a course of action. “C” is for commitment. The individual makes an emotion commitment to act.

How do these two differ?

Steps toward a solution…
Determine where Ray is in the problem-solving process.
―What you’re telling me sounds good, and I will probably go with it. But, I just need some more time to think this through and go over the numbers. Based on interest rates, I know my debt is just going to increase but my income—that’s a variable I am not comfortable with. My unemployment benefits won’t last indefinitely. Of course, I will get a job. Heck, software designers are supposed to be in demand.‖

People often get stuck on a particular step…
Determine where Sarah is in the problem-solving process:

―If I had all the child support due to me, I could pay off my debt and then some. You know, they started to garnish his wages and then guess what? He got fired! Anyway, I’ve got to do something and stop waiting around for what’s not coming.‖

Problem Solving through Counseling
(Page 53)

Counseling Process:

Where the Client is Current Scenario

Where the client wants to go Preferred Scenario

Goals Getting There

The Problem-Solving Process


Summary – The Problem-Management/OpportunityDevelopment Model describes the helping process inherent in all counseling. – People are naturally motivated to resolve financial dilemmas. – Counseling facilitates the natural process individuals follow to find solutions.

Solution-Focused Counseling
(Page 81)
Goal-orientated  Highlights client strengths and resources  Focuses on the future  Reframe what is not working or working against the client (the old context) and refocus to something that will work (the new context)


Concepts of Solution- Focused Counseling
Change is inevitable Future-orientated If it works, don‘t fix it Attend to what is possible and changeable Complex problems do not necessarily require complex solutions


   

Solution focused is focused on the solution…
    

The solution may/may not be related to the problem Clients define, specify, and monitor their own goals People have many skills (some unknown) Problems do not indicate pathology Specific techniques: Exception/Miracle Question

Where the Client Is Now

Where the Client Is Now




A clear sense of the client‘s current financial situation will set the stage for all future financial planning and goal setting. Assessing the client‘s financial condition involves not only dollars-and-cents calculations but also the client‘s attitudes and beliefs about money. Where is the client now? To find out, counselors use objective measures such as net worth, debt-to-income ratio, and budget analysis. Subjective assessments are no less important in determining a client‘s overall financial situation. These assessments explore cognitive and emotional issues linked to money – how we make it, how we spend it, and how we feel about it.

How much are you worth?

Assets
Examples:
House Car Boat Investments $$$$$

Liabilities
Examples:
Mortgage Loans

Net Worth

Credit card debt
Utility bills

How much are you worth?
Two steps in calculating net worth
1.
2.

Identifying all items of value
Determining market value • What are some ways to determine value of assets? (See page 56)

*What is typically the greatest liability to consumers? *What is the difference between an asset and a liquid asset?

Types of Assets
Current Assets
         

Cash on Hand Checking Account Savings Account Certificate of Deposit Money Owed to You Tax Refund Stocks/Bonds Mutual Funds/Shares Other Other

$ $ $ $ $ $ $ $ $ $ $


Fixed Assets
      

Automobiles Home Market Value Other Real Estate Boats, Planes, etc. Jewelry, Collectibles Other Property Other Other

$ $ $ $ $ $ $ $ $

Liquid Assets Total

Fixed Assets Total

Analyzing the Budget


What‘s coming in? What‘s going out?
- Know the difference between gross and net income - Breakdown expenses into fixed, variable, and discretionary



Compare expense categories to a spending percentage guideline.
- The Bureau of Labor Statistics is one source.



Track daily spending
- Don‘t skip days - Record every expense - Record expense immediately - Write down costs to the penny

Where the Client is Now
Expense Breakdown
Fixed Expenses Variable Expenses Do vary utilities Discretionary Expenses Can Control Concert tickets

Expenses
Example

Don’t vary mortgage

Monthly Budget
Net Income/month Housing Utilities Automobiles Food Clothing Medical Personal Unsecured Debt Total Expenses 1920 750 219 430 320 115 0 140 3500/200 2174 Percentage of Income 39% 11% 22% 17% 6% 0% 7% 10% 1920 - 2174 = -254.00 Spending Percentage Guide

25-35% 5-10% 10-15%

5-15%
2-7% 5-10%

5-10%
5-10% www.bls.gov

Spending Personalities
Spending Personalities
1.

The Fanatical Shopper
Out to find the lowest price!

2.

The Impulsive Buyer
Lack of control and no plan

3.

The Passive Buyer
Easily persuaded

Spending Personalities
4.

The Ulterior Motive Spender
Shop to escape

5.

The Esteem Spender
Shop to impress

6.

Special Interest Spender
Spend on hobbies or addictions

7.

Hot Potato Spender

May panic and then quickly spend

Destructive thoughts, feelings, and ideas about spending
   

I deserve it! I don‘t expect much I‘m waiting for a miracle I‘m showing them I really care

   

I need a fix—now! I‘m not good with money I will impress you I believe money corrupts people

I‘m not like everybody else * How do you handle clients who use these statements?




It doesn‘t really matter

3 A’s Of Money Relationships


Money & Achievement Work hard and want something tangible to show for it Money & Approval Want everybody to like them Money & Agitation Purchase items based on emotions





*Which ―A‖ best describes your relationship with money?

Where the Client is Now


Summary
– Net worth statements and debt-to-income ratios help to assess client‘s current financial situation – Spending percentage guides are a good objective measure of how well money is spent – People exhibit various ―spending personalities‖

Where the Client Wants To Go

Life-Cycle Planning

2

3 6 5

1
7

4

Life-Cycle Planning
Four Steps to Planning: 1. State goals in specific terms 2. Create a plan 3. Evaluate Progress 4. Determine whether to progress or re-focus

Desirable goals
Desirable goals contain 3 characteristics
1. 2. 3.

Specific Measurable

Viable

Which of the following describes a measurable and realistic goal? Martha told her counselor, Ted that her goal was to improve her financial health. She was going to start today by reducing her spending. Martha told her counselor, Ted that her goal was to improve her financial health by finding a second part-time job to improve her debt-to income ratio. She hoped to reduce her spending by 90% this month. Martha told her counselor, Ted that her goal was to improve her financial health by finding a second part-time job to improve her debt-to income ratio. She hoped to reduce her spending by 10% this month.

Maslow’s Hierarchy of Needs
• To reach your full potential •To be appreciated and heard •To belong and be excepted • To be safe from physical harm • To have food, clothing, and shelter

SelfActualization

Need for Love
Need for Love and Belonging

Needs for Safety
Physiological Needs

Maslow’s Hierarchy of Needs
(Page 72)



Physiological Needs - These are the basic survival needs such as food, air, water, and warmth. These are life‘s essentials! However, how these essentials are procured may vary widely from one individual to the next. For example, drinking water can either be delivered by a service or simply poured from the tap. Food can either come from gourmet dining or frugal grocery shopping. Safety Needs – The need for security becomes active once the basic needs for life maintenance have been met. The need for safety/security can influence such spending decisions as exclusive vs. modest housing or luxury vs. economy vehicles. Many products on the market today are designed to give an illusion of security.



Maslow’s Hierarchy of Needs


Needs for Love, Affection, and Belonging - Once a feeling of security is established, a need for love and a sense of belonging takes precedence. Many people buy items in order to fit into a perceived status quo or in order to attract love or affection from others. A large portion of a client‘s debt can accumulate from this form of emotional spending. The ―need‖ to own a certain vehicle or live in a certain type of housing may stem from the underlying need for acceptance within a desired group. Attracting love and affection in others can result in erroneous purchases that include expensive clothing, jewelry, or beauty treatments. Advertisers have been exploiting this human need for decades. Needs for Esteem – Once an individual has met the first three levels of needs, the need for esteem becomes dominant. This includes gaining selfesteem and esteem from others. To satisfy this need, a consumer may buy in order to look or feel good about himself/herself or to project a certain image of success or authority. Such purchases may include designer clothing, a prestigious watch, or other conspicuous items.



Maslow’s Hierarchy of Needs


Needs for Self-Actualization – At the top of the Needs Hierarchy is the need to realize one‘s true potential. Needless to say, this is the hardest need to satisfy because it is often unclear exactly what it means to actualize your true potential. However, if this need is not met, the symptoms are quite identifiable. If an individual has met all the prior needs but lacks satisfaction in this one, the condition manifests itself in a certain restlessness, tension, and edginess. The individual may spend in order to compensate for this particular feeling of emptiness. Purchases that arise from this need would then include merchandise or experiences that add diversion to life such as frivolous toys, trips, or any purchase made to ―escape.‖

“We need to eat so we can be safe so we can belong so we can be confident so we can aspire.”

Where the Client Wants to go


Summary
– Financial goals shift throughout the life-span – Goals should be specific, measurable, and viable – Maslow‘s Hierarchy of Needs is a tool to evaluate client‘s needs, wants, and desires

How the Client Will Get There

How the Client Will Get There
Bandura‘s Self-Efficacy
(Page 77)

Taking action depends on: 1. Outcome expectations
2.

Self-efficacy expectations

How the Client Will Get There
J.B Rotter‘s Locus Of Control
(Page 78)

1.

Internal Locus of Control

consequences and outcomes are a result of individual‘s actions

2.

External Locus of Control

the world around them is purely luck or chance

Locus of Control


Internal locus of control - people understand they are responsible for their own actions, they have put themselves in the situation they are in now
External locus of control – people tend to blame others for their predicament, what happens is based on luck



How the Client Will Get There
Overcoming Self-Defeating Behaviors/ Albert Ellis:
1.

2.
3. 4.

Don‘t fall for irrational musts Use rational coping and selfstatements Take the bad with the good Never underestimate the power of distraction

Spending Plan
Spending Plans have 4 Primary Benefits:
1.

Helps to identify overspending

2.

Promotes honest interpersonal communication and accountability
Increases motivation Tracks your success

3. 4.

Economizing
Economizing
Substituting Conserving Cooperating Utilize community resources

Examples
Dry clean own clothes Preventative car maintenance Share babysitting Library

How the Client Will Get There


Summary
– In order for an individual to take action, a client must believe the action will result in a desired outcome and they have the ability – Individuals either possess an external or internal locus of control – There are many benefits of a spending plan – There are four ways to economize

Module 2 Key Words
    

  

Budget analysis is the process used to determine how well resources are being allocated. Daily expense record tracks everyday expenses by listing exact amounts going out at the point of purchase. Debt-to-income ratio is a percentage calculated by adding all monthly payments and dividing the sum by the monthly income. Economizing is allocating spending so that it has the maximum benefit for everyone in the household. Emotional spending is spending that involves ulterior motivations that go beyond the actual product or service purchased. It includes spending for approval, to alleviate stress, or to exact revenge. Financial success means different things to different people. A general definition is: obtaining maximum benefits from financial resources. Life-cycle planning is the idea of planning being a lifelong process with goals shifting from phase to phase. Locus of control determines whether you experience power over outside forces (internal locus) or you feel that outside forces have control over you (external locus).

Module 2 Key Words
 



  

Maslow’s Hierarchy of Needs categorizes human needs into successive levels. Each level of need must be met before the higher level can be addressed. Money relationships describe how we perceive and interact with finances. Some people associate money with achievement while others use money to seek approval from others. Money relationships often fuel impulsive spending. The Problem-Management/Opportunity-Development Model describes the fundamental process utilized by helpers to address client needs. Optimum counseling for the financially stressed involves reducing debt and non-essential expenses (managing the problem) as well as discovering ways to increase income (developing opportunities). Reframing is a solution-focused technique whereby a negative situation is seen in a positive light. Self-efficacy is the belief that you have what it takes to accomplish a particular plan of action. Spending personality refers to how a consumer behaves when making purchases. Spending personalities include the impulsive buyer, the fanatical shopper, and the ulterior motive spender.

Module 3
Demystifying Consumer Credit

Module 3 Overview
    

Credit Basics Choosing Credit Wisely Using Credit Wisely Understanding Credit Reports Credit Scoring

Credit Basics

Quick Facts About Credit
 

APR determines how much interest you pay
Amortization - payments on credit cards pay the interest first When you make minimum payments, you are paying mostly interest





Late payments allow credit card issuers to charge extra fees

Types of Credit
Secured Credit Unsecured Credit

A loan backed by collateral Loan extended based on ability to repay. No collateral

Types of Credit
Example

Installment Credit

Can be either secured or unsecured. Re-payed over time Can be either secured or unsecured. Re-payed in one payment

Car payment

Non-installment credit

Telephone bill

Types of Credit Cards
Card Type Bank cards Example Visa MasterCard American Express Diner‘s Club Dillards Wal-Mart Advantages Less risk involved Disadvantages Nominal service charge Annual fee Pay balance in full May have high interest rates

Travel and Entertainment Merchant Cards

Lower service fee

Seldom charge annual fees

Credit and Lending
How is credit extended? •Creditors extend credit to “consumers”

•Denial of credit
•Delinquent credit obligations •Incomplete credit application •Too many inquiries

•Errors in a file
A consumer may request a free copy of their credit report within 60 days of: •Denied credit •Denied employment •Denied insurance •Denied housing •Experian, Transunion and Equifax

Credit and Lending
Factors to determine credit limit:
•Consumer’s credit rating

•Corporate policy
•Competition from other lenders •Availability of funds •Economy •Age of the card holder not a factor in determining credit limit •Clients should realize that being issued a credit card is a privilege

•Be wary of credit limits that go beyond the ability to pay

Credit Card

Watch Video At:
http://www.pbs.org/wgbh/pages/frontline/shows/credit/

Credit and Lending
Types of fees 1. Late Fees 2. Over-the-limit fees 3. Pay-off fees 4. Annual fees 5. Transactions fees 6. Nuisance fees 7. Charges for cash advances

Preventing Credit Card Debt
      

Limit the number of cards you maintain Avoid cards with high interest rates Avoid cards with early interest posting dates Avoid credit cards with complicated billing procedures Limit credit limits Avoid making only minimum payments Evaluate credit offers

Truth in Lending


The Truth in Lending Act
– Requires ALL credit card issuers to disclose:
 APR  Monthly finance charges  Fixed or variable rates—and calculations  Interest rates for cash advances  Grace periods  Method of calculating finance charges  Additional fees

Finance Charges are calculated using one of four balance computation methods:
Average Daily Balance  Adjusted Balance  Previous Balance  Two-Cycle Average Daily Balance


Credit and Lending


Summary
– Four types of credit: unsecured, secured, installment and non-installment – There are several fees that can be associated with different credit cards – Credit limits based on credit ratings – The Truth in Lending Act requires disclosure of late fees, finance charges, and balance computation method

Choosing Credit Wisely

Choosing Credit Wisely
Qualifying for credit … ASAP!

Ability – Do you have the income to repay the loan? Stability – How long have you held your current job?
How long have you lived at your residence?

Assets – What do you own? Performance – How have you handled credit in the
past?

Credit Card Features


Desirable card features include: Low interest rates No annual fee Long grace period Low penalty fees Adjusted balance computation method

    

Equal Credit Opportunity Act


Equal Credit Opportunity Act
– Must inform you within 30 days reason for denied credit – Must give specific reason

Summary


Summary
– Creditworthiness can be seen as ―ASAP‖ – Look for desirable credit card features – The Equal Credit Opportunity Act requires that creditors inform consumers of rejected or incomplete applications

Using Credit Wisely

Fair Credit Billing Act


Governs credit and charge card billing errors  Billing errors? Respond immediately by registered or certified letter  Consumer has 60 days to contact and creditor has 30 days to respond  If there is a problem, creditor has 90 days to fix it
More info… www.ftc.gov/bcp/conline/pubs/credit/fcb.htm www.ftc.gov/os/statutes/fcb/fcb.pdf

Canceling a Credit Card


Systematic way to cancel a credit card
– Notify the card issuer by phone – Follow up by notifying the issuer in writing – Check your credit report ―Closed at consumer‘s request‖ – Recommended that you pay off you balances before canceling

Using Credit Wisely


Summary
– Communicate with creditors to resolve billing errors – The Fair Credit Billing Act helps consumers dispute billing errors – There is a systematic way to cancel a credit card

Understanding Credit Reports

The Fair Credit Reporting Act


The Fair Credit Reporting Act
– Governs who can acquire and read a consumer‘s credit report. Reasons to read a report include:
1. 2. 3. 4. 5. 6. Application for government license Application for business license Credit or insurance transaction Court subpoena from federal jury Requirement for settling child support www.ftc.gov

The Fair Credit Reporting Act
– Requires that negative reporting be erased 7 years after date initiated – Within 60 days of denied credit, a consumer can request a free copy of their report

Fair and Accurate Credit Transactions Act
– The Fair and Accurate Credit Transactions Act – Allows consumers ONE free credit report per year – www.annualcreditreport.com – Go to the site and get your credit report and score from all three credit reporting agencies (TransUnion, Experian, Equifax)

Credit Reporting Agencies
TransUnion
General Information
Summary Line Public records information Account Information List of Inquiries Consumer Statement

Equifax
Personal Identification Information
Public records Collection agency Credit Account Additional Information Companies that request credit file

Experian
How to read this report
Your credit history Your credit history was reviewed by Please help us help you Identification Information

Credit Reporting Agencies


All three reporting agencies contain
– – – – Personal Identification Information Account history information Public record information Inquiries



Your credit report may be DIFFERENT at all three agencies

The Fair Credit Reporting Act


The Fair Credit Reporting Act
– Outlines procedures for fixing credit report errors – Requires the credit bureau to resolve the problem in a reasonable time---generally 30 days – As long as a charge is in dispute, the dispute WILL appear on the credit report

Understanding Credit Reports


Summary
– Obtain credit reports once a year for accuracy – FACTA allows consumers one free credit report per year – The Fair Credit Reporting Act requires negative reporting to be erased – Consumers can fix reporting errors by following a standard procedure

Credit Scoring

Credit Scoring (Page 135)


FICO scores
– Used as guide for future risk – No single cut-off score – Provided to all three reporting agencies, but may be different at each agency – Have different names at agencies – Changes over time

What a FICO Score Considers
Types of Credit 10% New Credit 10% Payment History 35%

Length of History 15%

Amounts Owed 30%

Reasons for Low Credit Scores
Top 10 Reasons for Low Scores
1.
2. 3. 4. 5. 6. 7. 8. 9. 10.

Serious delinquency Serious delinquency and public record Derogatory public record Time since delinquency is too recent Level of delinquency on accounts Amount owed on accounts Balances too high Length of time accounts have been established Too many accounts with balances Number of accounts with delinquency

Raising Your Score
Pay bills on time Get current and stay current Avoid collections Contact creditors to negotiate easier payment schedule – Keep balances low – Pay off debt rather than move it around – – – –

More Tips!!
Do NOT open a number of new cards  Don‘t open unneeded credit cards just for a mix  Closing an account without paying the balance does not make it go away


What doe NOT go into FICO


Factors that do NOT impact a FICO score include – Race, color, religion, origin, sex – Marital status – Age – Salary – Occupation, employers – Residence – Personal Inquiries

Credit Scoring


Summary
– FICO scores are the most widely used scores – Five main categories are used to compute a FICO score – There are tips to raise your score – U.S. law prohibits scoring based on race, color, religion, national origin, or marital status

Module 3 Key Words






 

Balance calculation methods are used by credit card issuers to determine interest that is applied to an account. Methods include the average daily balance, the adjusted balance, and the previous balance. Creditworthiness is the general qualification for borrowing in the opinion of the lender as based on the borrower‘s credit history, ability to repay the loan, and other factors such as amount of current assets. Credit reports contain information about a consumer‘s credit history which includes credit transactions, payment patterns, and legal actions if any. Credit scoring is an methodology used by credit grantors to make credit decisions. FICO scoring is the most common method in use today. Finance charges are the amount of interest a consumer pays for the use of credit. It is based on the lender‘s annual percentage rate (APR).

Module 3 Key Words

 

  

Grace period is the time in which a cardholder can make purchases without incurring finance charges. Inquiries appear on a credit report any time a request is made to see the report. Too many inquiries can be a reason for denial of credit. Nuisance fees are fees charged by credit issuers above and beyond finance charges. These include late fees, transaction fees, over-the-limit fees, and annual membership fees. Secured credit is any loan backed by collateral. Unsecured credit is not backed by collateral. The lender extends credit based on the likelihood that the consumer will repay the loan. Universal default is a lending practice whereby penalty rates are applied by several creditors if you default on the loan agreement of just one.

Module 4
Understanding and Dealing with Debt

Module 4 Overview
    

Getting Into Debt Debt Collection The Consequences of Unpaid Debt Getting Out of Debt Bankruptcy

Getting Into Debt

Sources of Debt
(Page 149)

     

Easy access to credit Easy access to money Consumer culture Changing technology Lack of financial literacy Financial setbacks Spending to much

Psychology of Spending


Competitive spenders – keep up with the ‗Jones‘ & Advertisers/Media Compulsive spenders – fill some void by binge shopping Co-dependent spenders buying people‘s love





Psychology of Spending


Narcissistic spenders
want to look good



Revenge spenders
spend to get back at someone

Dealing with Debt
(Page 155)


Panickers---fail to prioritize and borrow more to pay existing debts
Mourners—in state of denial about debts Rationalists—do it the correct way Fraudsters—set out to abuse system

  

Getting Into Debt


Summary
– Understanding sources of debt can be helpful in counseling: increases counselor empathy and helps identify financial obstacles – Many reasons for indebtedness

– Unhealthy spending styles lead to over spending

Debt Collection

Debt Collection


Who are the 3 representatives authorized to collect debt? Collection agencies receive 50-60 % of funds recovered.





Greatest chance for collecting owed monies -- within 60 days of the initial contact.
Past due for 90 days or more—sent to collection agency



Debt Collection



What does Current and Charge-off mean?
Reage the account-good faith-consistent payments As time passes, the collection agency becomes more open to negotiate a pay-off



Debt Collection
Unsecured credit grantors have the right to:
1. Revoke credit privileges 2. Damage credit rating

3. Sue to collect debt

FDCPA


Fair Debt Collection Practices Act
– Passed to protect consumers from harassment and unfair treatment

– Amended to include attorneys
– Outlines what debt collectors can and can not do when attempting to collect debt – www.ftc.gov

FDCPA

1. 2. 3.

Collection Agencies can NOT:
Give misleading or false information about the debt to others. Make excessive calls. Interrupt the work routine of a client. Send a letter that may appear to be an official government document. Threaten anyone. Imply that physical damage may occur to a client’s property. Deposit a post-date check before the date on the check. Misrepresent themselves. Continue to harass a client after being notified in writing to cease. Any conveyance of information regarding a debt through direct or indirect method is referred to as “communication”.

4.
5. 6. 7. 8.

9.

FDCPA
Collection Agencies CAN:
1. 2.

Call between 8a.m. and 9 p.m. at debtor’s home Initiate action to place liens, garnishments, and judgments. Ask personal information Offer incentives for partial or full payment

3. 4.

Fair Credit Billing Act


The Fair Credit Billing Act
– Consumers have 60 days after receipt of bill to dispute claim – Creditor must respond within 30 days – Consumer cannot be reported to the credit bureau as delinquent until dispute is settled

– respond immediately by registered or certified letter – www.ftc.gov

Debt Collection


Summary
– Three types of representatives authorized to collect debt are credit grantors, collection agencies, and attorneys – FDCPA helps protect consumers from harassing collectors – The Fair Credit Billing Act protects consumers regarding billing errors

The Consequences of Unpaid Debt

Secured or Unsecured?


One of the first questions asked when prioritizing a payment schedule is ―Is the outstanding debt secured or unsecured?‖

– Why is it important to know this information?
– Which do you want to prioritize first, secured or unsecured debt?

Foreclosure
Steps in the foreclosure process 1. Notice of Default-have 90 days make up missed payments 2. Notice of Acceleration-full amount of mortgage due 3. Notice of Sale— provides time and date of foreclosure

Mortgage Workouts


Negotiate an easier payment schedule
– Cure the debt – Recast the debt

Automobile Repossession
How many missed payments before they can repossess your car?

The Deficiency Balance – If a car loan is $8,000 but only sold for $5,000, what is the deficiency balance?

Utility Shut-Offs
Publicly owned utility companies must send a termination notice  Consumer Rights – Provide notification pending shut-off – Customers have a right to a hearing – Customers can arrange for deferred payments – Protected from shut-offs during winter months – Seriously ill protected from termination – Landlords cannot terminate service to renters


Consequences of Unpaid Debt


Judgment Liens
– Varies from state to state



Wage Garnishments
– Up to 25% can be intercepted

Consequences of Unpaid Debt


Summary
– Secured credit should be resolved first – Foreclosures can be a long process – Common mortgage workouts include recasting the debt and curing the debt – Negotiating is key to handling unpaid debt – Consumers have rights with utility shut-offs

Getting Out of Debt

Resolving the Debt
(Page 171)
    

Consumer workouts Debt consolidation

Credit counseling
Debt settlement Budget counseling

Consumer Workouts


Consumer workouts occur when those who are having trouble paying their bills contact their creditors directly and attempt to negotiate an agreed upon arrangement for payment. Usually creditors accommodate sincere consumers when they try to remedy their difficulty or inability to pay a bill. However, as soon as consumers fall behind in payments – even by a month or two – the creditor has the upper hand. Creditors can easily penalize those who do not pay on time by charging late fees and adding blemishes to a credit report. In other words, negotiating with creditors is not always easy to say the least. Resolving debt without professional assistance can be a viable option for those experiencing a temporary financial setback. However, negotiating with creditors requires motivation, commitment, and a spending plan.

Debt Consolidation Loans


Debt consolidation loans give consumers the ability to pay off their high-interest accounts typically through lowered monthly payments. However, the term of the loan agreement is longer. This type of repayment plan requires that the consumer apply and qualify for the loan. That means the consumer must have the ability to make ontime payments. It also means the consumer‘s credit rating has to be in relatively good shape.

Credit Counseling


Credit counseling is a fast growing industry today with thousands of debt management agencies nationwide. Credit counselors enroll clients in debt management plans or DMPs that involve one monthly payment. That payment is handled by the agency and dispersed to the various creditors. They receive what is known as ―fair share‖ from the creditors which is a percentage of the collected payment. To qualify for credit counseling, consumers must have a steady source of income in order to make regular monthly payments. They also must be committed to resolving their outstanding debt as a DMP may take up to four years to complete depending on the amount of debt.

Debt Settlement


Debt settlement (sometimes referred to as debt negotiation) offers consumers the option to resolve their debts with a lump sum payment. The debtor must come up with the agreed upon amount in order to pay off the debt all at once. This could require a period of time in which to save the necessary funds. In some cases, a client in debt settlement pays into an account. As cash accumulates, the debt negotiator works out a reduced settlement amount with the creditors. This alternative holds promise for consumers with sizable debt issues who wish to avoid a declaration of bankruptcy. Typically, clients in debt settlement must endure a period of increased debt collection activity while they cease making regular payments to their creditors. However, for many debtors, this is a viable alternative to a Chapter 7 Bankruptcy.

Budget Counseling


Many individuals who are experiencing financial stress would benefit from budget counseling. This type of counseling is offered by nonprofit agencies to help consumers analyze their monthly expenses and develop a spending plan so they can pay their bills on time. In some cases, budget counseling is also offered to support clients who enroll in debt management and debt settlement plans.

Getting Out of Debt


Summary
– Consumers can either resolve debt or file bankruptcy – Ways to resolve debt include debt consolidation and budget counseling

Bankruptcy

Bankruptcy
 







All bankruptcy options are a consumer‘s right Pre-counseling is now a requirement before bankruptcy can be filed Unemployment, large medical bills, and divorce are top reasons for filing In general bankruptcy should be seen as a turning point toward a new financial future Discharged debt is still a co-signer‘s responsibility

Types of Bankruptcy

 

Chapter 7
– liquidation

Chapter 11
– Designed for corporations re-organizing

Chapter 13
– Reorganization

Chapter 7 Bankruptcy
May file one time in 8-year period  Stays on a credit report for 10 years  Varies considerably from state to state  Generally consumers keep necessary property


Chapter 7 Bankruptcy
Examples of debts that are NOT discharged are:  Taxes  Student Loans  Debts from prior bankruptcy  Spouse and child support  Criminal fines and penalties  Liability from driving while intoxicated  Debts arising out of willful or malicious misconduct  Credit card charges made within 40 days of filing  Money owed to an individual as a result of intentional harm done to them  Any possession converted to exemplary assets within 90 days of filing  All secured debts will be discharged

Chapter 13 Bankruptcy
  




Reorganize debt and negotiate a plan Agree to pay back all or part of debt in a 3-5 year period Debt is dismissed stays on credit report for 10 years Debt is discharged stays on credit report for 7 years Can be filed once within a two-year period

Chapter 7, 11, 13








What are the differences between Chapter 7, 11, and 13? Chapter 11 is designed primarily for business reorganization Chapter 7 absolves the client from any debt filed under it-file once in 7 year period (changed with new law) Laws that limit access to a debtor’s assets varies from state to state



Chapter 13 gives legal protection while filer reorganizes payment plan
Under chapter 13 a debtor arranges to pay back all or part of the debt over a 3-5 year period New bankruptcy law – check out website http://www.usdoj.gov/ust







Module 4 Key Words
 



 



Collection agencies are given authorization by the credit grantor to collect money owed on a commission basis. Generally, they keep 50% - 60% of all the funds collected - not a percentage of the actual debt. Consumer workouts occur when those who are having trouble paying their bills contact their creditors directly and attempt to negotiate an agreed upon arrangement for repayment. Credit counseling offers a debt management option where, for the most part, not-for-profit agencies negotiate with creditors on behalf of their clients and enroll clients in payment plans that involve one monthly payment. Debt settlement works to settle debts with a lump sum payment that is negotiated and agreed upon with the creditors. Deficiency balance is the portion of the loan still outstanding after the sale of property used as collateral. The amount from the sale is deducted from the total amount of the loan. The borrower is then responsible for paying off the difference. Financial Literacy is the state of being knowledgeable about personal financial management. This includes knowing how to balance a checkbook, read and interpret lending agreements, and creating and maintaining a spending plan. Lack of financial literacy is one of the most prevalent sources of delinquent debt.

Module 4 Key Words








 

Lawsuits are initiated by creditors of unsecured debt to collect on unpaid accounts. If the lender wins a court judgment, lawsuits can result in liens on property, wage garnishments, and seizures of bank accounts. Mortgage workouts can help when clients are having trouble paying the mortgage. Sometimes an easier payment schedule can be negotiated either temporarily or permanently with the lender. Notice of Acceleration is the second step in the foreclosure process. This notice alerts the consumer that the total amount of the loan must be paid to avoid foreclosure. Notice of Default is the first step in the foreclosure process. At this point, you have 90 days to ―cure‖ the debt by making up all your missed payments plus late charges. Notice to Quit (Notice to Vacate) is the notice the renter receives from the landlord as a first step in the eviction process. Predatory lending exploits vulnerable consumers by extending high-cost loans that do not take into account the borrower‘s ability or inability to repay the loan.

References

Credit Offers
Credit Hunt: Find the Best Deal!  www.bankrate.com  www.cardweb.com  www.getsmart.com  www.ramresearch.com
Who has the best terms for you?

Credit Reports
     

www.equifax.com www.experian.com www.transunion.com www.fico.com www.yourcreditreport.com www.myfico.com

Consumers need to know the score!

For more information:
Other CEUs

www.ifcinternational.org

Web sites
www.naccc.us www.afhc.org www.debtcounselorsonline.com

…this concludes the review.


				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:27
posted:11/7/2009
language:English
pages:179