# Presentation: 711627

## C.A.R.E.

- Credit Abuse Resistance
- Education Program

## C.A.R.E.A Program of:

- U.S. Bankruptcy Courts of West Virginia
- The West Virginia State Bar
- The WV Bankruptcy Law Committee

## C.A.R.E.

- The C.A.R.E. program was founded by the Honorable John C. Ninfo, II, Bankruptcy Judge for the Western District of New York.
- As of March 2007, the C.A.R.E. program is in 39 states and the District of Columbia.

## C.A.R.E.

## A Word from Judge Ninfo

- “It is the hope of the program that students will not go down the road of consumer credit abuse once they understand:
- (1) the true cost of consumer credit;
- (2) how difficult it is to repay consumer debt incurred to buy and do things that you really can’t afford and don’t need;

## A Word from Judge Ninfo

- (3) the many consequences of financial problems, which are becoming more numerous and serious;
- (4) the need to have savings and how to effectively budget with a view towards needs versus wants;

## A Word from Judge Ninfo

- (5) that just maintaining debt is not being able to afford it, affording debt is being able to pay it back; and
- (6) it is better to live consumer debt free.”

## The Need for Credit Education

- 68% of teens report that they have not had a meaningful discussion about responsible credit card use with their parents.
- 31% of teens, 18-19 years of age, have credit cards in their own name.
- 71% of young adult cardholders revolve their balances compared to 55% of all cardholders.

## The Need for Credit Education

- People under the age of 25 are one of the fastest growing groups of bankruptcy filers.
- One out of five young adult households are in debt hardship – meaning that over 40% of their income goes to debt payments each month.
- In the last decade, young adults (ages 18-24) saw credit card debt increase 104%.

## The Need for Credit Education

- Graduating college students average $20,402 of debt - $3,262 of that is credit card debt.

## The Need for Credit Education

- 18% is the current average starting interest rate for students and young adults.

## The Cost of Credit Card Debt

## Paying Interest – Less Savings

- 43% of Americans spend more than they make, and in 2005, for the first time since the Great Depression, our savings rate in this country was negative.

## The Cost of Credit Card Debt

- An American consumer with $10,000 in credit card debt, paying an average interest rate of 14% will pay $117 per month in interest alone.

- If they could invest that same amount each month of their work life (approximately 40 years), it would grow to $307,103 (assuming a 7% return).

## Making the Minimum Payment

- Paying the minimum monthly payment on $2,000 with a 31% interest rate will take 15.6 years to pay off the debt at a total cost of $5,348.15, including $3,348.15 in interest.

## The Cost of Credit Card Debt

- Minimum Payment vs. Fixed Payment
- ($2,000 at 18% Interest)

|  | Minimum Monthly Payment | Fixed Monthly Payment of $80 |
| --- | --- | --- |
| Years to Pay Off | 9.5 | 2.6 |
| Total Interest Paid | $1,115.69 | $477.99 |
| Total Purchase Cost | $3,115.69 | $2,477.99 |

## Cash vs. Credit

|  | Store A | Store B | Store C |
| --- | --- | --- | --- |
| Cash Price | $379 | $388 | $410 |
| APR | 27% | 13% |  |
| Number of Monthly Payments | 12 | 12 |  |
| Monthly Payment | $36.25 | $35.00 |  |
| Finance Charge | $56.00 | $32.00 |  |
| Amount repaid | $435 | $420 | $410 |

## The Importance of Good Credit

## The Importance of Good Credit

- Your history of payments, employment, and salary makes you a good candidate for a loan.

## Better Loan Terms

|  | Lender 1
Credit Union | Lender 2
Dealership | Lender 3
Bank |
| --- | --- | --- | --- |
| Amount of Loan | $5,000 | $5,000 | $5,000 |
| Monthly Payment | $226.14 | $161.34 | $131.67 |
| Number of Payments | 24 | 36 | 48 |
| Total Repaid | $5,427.27 | $5,808.09 | $6,320.12 |
| Finance Charge | $427.27 | $808.09 | $1,320.12 |
| APR | 8.0% | 10% | 12% |

## The Importance of Good Credit

- You will be viewed as financially trustworthy and given better loan terms.
- It may help you rent an apartment and obtain employment – most landlords and prospective employers will look at your credit report.

## Consequences of Credit Abuse

- Credit abuse may make it impossible to complete a degree.
- Denial of employment, credit, student loans, or leases. Higher interest rates and higher insurance rates.
- Bad credit rating.
- Emotional stress, divorce, and family problems.
- Bankruptcy.

## Avoiding Credit Abuse

- Distinguish between wants and needs.
- Have only one credit card.  Opt for a low credit limit on that one card.
- Pay off your balance each month.
- Never make only the minimum payment.

## Bringing C.A.R.E. to Your Classroom

- Please visit the C.A.R.E. website at www.careprogram.us