Credit Cards What You Don�t Know CAN Hurt You

Credit Cards: What You Don’t Know CAN Hurt You A Presentation by the Oregon Society of CPAs Speaker Company City Where we are • The average American family spends $1.22 for every $1.00 it earns • The national savings rate for Americans is at its lowest point since the Great Depression A presentation by the Oregon Society of CPAs OSCPA Financial Literacy Project • Two out of three Americans will probably not reach one or more major life goals such as home ownership or college unless they receive more financial training A presentation by the Oregon Society of CPAs What does that mean? • Two out of three of the people in this room will probably not realize one or more major life goals - such as home ownership or retirement - unless they receive more financial training • You are not immune because you have a college degree A presentation by the Oregon Society of CPAs Why do people charge? • There are a lot of reasons people spend more than they make. But here are a few: • ―I’ll have more money later‖ (Odds are you won’t.) • ―Someone will pay it off for me‖ (Are you sure about that? Do you want to be that kind of person?) • ―I need it now, but I don’t have any cash‖ (Do you mean need or want?) • ―It’s an emergency‖ (This may happen, but better to be prepared with an emergency cash fund than be paying off interest for years as a result.) A presentation by the Oregon Society of CPAs Constructive vs. Destructive Debt • Constructive Debt: Student loans, home mortgages, business loans, etc. – A loan you take out as an investment (appreciates) – Get something in return • Destructive Debt: Consumer items – No investment (depreciates) – Clothes, CDs, vacations, even cars! A presentation by the Oregon Society of CPAs Let’s say you charge some things • • • • • iPhone New clothes Laptop Books for school Dining & Entertainment $400 $250 $1,000 $400 $150 $2200 A presentation by the Oregon Society of CPAs Where we are… • The median credit card debt in American households = $2,200 • A reasonable interest rate for a student card is 18% • Let’s say you put that $2,200 on your credit card…now what? A presentation by the Oregon Society of CPAs After 1 year paying the minimum balance (18% interest) $2,500 $2,000 $1,500 $1,000 $500 $0 Balance 18% interest, 2% of balance, or $10, is minimum payment, whichever is more $2,200 $128 Paid off A presentation by the Oregon Society of CPAs After 3 years… $2,500 $2,000 $1,500 $1,000 $500 $0 Balance Paid off A presentation by the Oregon Society of CPAs $2,200 $363 After 32 and a half years?? • At this rate it would take 32 years and 5 months to pay off your credit card balance (assuming you didn’t buy anything else) • If you are 18 now, you would be over 50 years old • Total payment on that $2,200…$7,731! – $5,531 in interest A presentation by the Oregon Society of CPAs True cost-*factoring in interest… • • • • • iPhone New clothes Laptop Books for school Dining & Entertainment $400 $250 $1,000 $400 $150 $2,200 $1406 $ 878 $3514 $1406 $ 527 $7,731 *Approximate, based on paying 18%, 2% minimum or $10/month, whichever is more A presentation by the Oregon Society of CPAs Why is this important to me? • 56% of students reported getting their first credit card freshman year1 • As students progress through college, credit card usage swells1 • University administrators state that they lose more students to credit card debt than academic failure2 • Those with highest average debt worked the most & had highest levels of anxiety1 – Increased work hours – Distraction from studies Students and Credit Cards in 2004‖; Nellie Mae 2Utah 1 ―Undergraduate Mentor, 2003 A presentation by the Oregon Society of CPAs Playing offensive debt management • Monitor your bills – Beware of teaser rates – Keep balance low or at zero – Keep track of your interest rate—try negotiating a lower rate if you have a good history – Know when the bills are coming • Pull your credit report – Experian, TransUnion, and Equifax – www.annualcreditreport.com WAY TO GO! A presentation by the Oregon Society of CPAs Playing defensive debt management • Wait until credit company calls (or worse, the collection agency!) • Creating more debt to pay off other debts • Become victim of fraud or identity theft by not checking out bills or credit reports Not the way to go! A presentation by the Oregon Society of CPAs How do I avoid getting in too deep? • Your credit card is NOT free money—it’s really a loan you have to pay back • Make sure you have enough to pay off the balance each month • If you’ve already spent too much, pay more than the minimum balance consistently • Pay ON TIME—not only does it affect your credit score if your payments are late, the late fees will dig you deeper into debt – Default interest rates range from 28.99% - 32.24%3 3Source: www.creditcardguide.com A presentation by the Oregon Society of CPAs When it comes time to buy… • Leave your credit card at home if you’re too tempted to spend when you go out • Take time to think about your purchase— avoid impulse buys • Make sure you know how much interest you’re being charged, annual fees, etc. so you know the actual cost of your purchase • People in 18 – 24 age bracket spend nearly 30% of income on debt repayment – don’t let that be you!4 4Generation Broke: The Growth of Debt Among Young Americans A presentation by the Oregon Society of CPAs “I wish I had known this sooner” • 41% of graduating seniors credit card balance average = $3,0715 • Students tend to double their outstanding credit card debt between freshman & senior years5 • Direct marketing targeted aggressively at college freshmen5 • Some law & medical schools encourage, or require, applicants to submit credit scores6 ―Credit Cards on Campus: Academic Inquiry, Objective Empiricism, or Advocacy Research?‖; Robert D. Manning & Ray Kirshak ―Online Extra: Personal Finance for Freshmen‖ Business Week Online 6Source: 5Source: A presentation by the Oregon Society of CPAs • AICPA & Ad Council teamed up to encourage young people to save • Pay yourself first! • Making small changes can add up • Make interest work FOR you, not against • Sign up for Feed the Pig podcasts for more tips! Remember this? • 2 out of 3 Americans will probably not reach one or more major life goals such as home ownership or college unless they receive more financial training • Have the life you want: be the 1 in 3! A presentation by the Oregon Society of CPAs Thank you! • For more information on Financial Literacy contact the OSCPA at: – www.orcpa.org/feedthepig.html – 503-641-7200 1-800-255-1470, ext. 12 A presentation by the Oregon Society of CPAs