# Presentation: 316844

## Starting Over:Making the Most of Your Money

**Notes:**
Making money takes time and energy.  You put a great deal of effort into earning money and working.   Figuring out what to do with your money and making sure you can reach your goals is what money management is all about.

Bankruptcy provides an opportunity to make a “fresh start” with your finances. Many of your previous debts have been erased or reduced. 

During this class, we’ll talk about ways you can: plan for spending and saving, increase income and reduce expenses, set financial goals, manage credit wisely, purchase insurance, and avoid frauds. You’ll also learn about available resources to assist you as you rebuild your financial life.

We all know it’s easier to spend that to save.  But saving is essential for financial security.

Ask learners: What are the benefits of having some savings set aside?  
Answers could include: reaching goals, coping with emergencies, peace of mind, etc.

Money is an important tool to use to help yourself and your family.  Using money safely and carefully will help you be financially safe and secure.  

## Class Topics

- Developing a Spending Plan
- Money Management
- Wise Use of Credit
- Consumer Information
- What are your questions?

- ?

**Notes:**
This slide lists the four major topics that we will cover in this class:
 Developing a spending plan (a.k.a., a budget)
 Money management
 Wise use of credit
 General consumer information such as consumer protection laws and information resources

These topics were written into the 2005 bankruptcy law as topics that everyone filing bankruptcy needs to know.  

The intent, of course, is to increase your financial knowledge and skills so that you do not become a repeat bankruptcy filer.

Ask learners: What questions do you want answered within these four topic areas?

## Money is a Tool to...

- Achieve dreams
- Fulfill your values
- Better quality of life
- Reach goals

**Notes:**
Money is used differently by each person.  

Money is a tool that helps us to reach our goals, achieve our dreams or fulfill our values (examples of values are family relationships and education).  

Your values are your guides.  They are the inner most thoughts and commitments that make you who you are.  Your values determine what is important to you and how you approach your life.  Money should help us do what we feel is important to us.  

When used correctly, money can help each of us improve the quality of life for ourselves, our families, and our communities.

Money is just one resource available to live a fulfilling and successful life. 

We also have many other tools to use – time, energy, talents, personal relationships, and other resources found within ourselves, our family and friends, and within our community.

## First Things First

- NEED = must haves
- WANTS  = can live without or postpone

**Notes:**
Every person has needs and wants.  Our needs are those basic things that we must have in order to live and grow.  We need food, water, clothes, health, and shelter.  

Wants are things that we can live without or postpone.  They are nice but not necessary.  For example, we may want movies, safety, a good education, a nice car.  

Many people confuse their needs and their wants. Money must be used to meet both of these – so which is most important?  Yes, meeting your needs must be done first!  If you fulfill your wants first, you won’t have enough money to meet your needs.  

Most people have more wants than needs.  Sometimes we get confused and have to think about a purchase for awhile.  Sometimes, an item can be a want or a need.  For example, clothing.  A warm winter coat is a need.  A 50th pair of shoes is a want.  

Similarly, food is a need but eating out in a fancy restaurant is a want.  

Polarity Activity: Have learners move around the room to indicate if items are a need or a want.

## Financial Goals

- Short term – Up to 3 years
- Mid term- 3 to 10 years
- Long term – Over 10 years

**Notes:**
Take a few minutes to dream. Dreams are important because they help you know what you want to do with your life.  

Your dreams become the basis for your goals or what you are striving to achieve.  Every person needs dreams – they are a picture of what your future could look like.

Think about your dreams.  Now think about what you would do or NOT do to get there.
Perhaps it is a dream of owning a home.  You must then take some steps to reach that dream.  These steps (e.g., save $100 a week for a downpayment) are called goals.

Some financial goals are short-term (up to three years) while others are long-term (over 10 years).  The time frames for financial goals are listed on the slide. For young and middle-aged people, retirement is a long-term goal.  If you plan to buy a car within two years, that would be an example of a short-term goal.

Some goals require money to achieve them.  Others may require hard work and time and talent.  Either way, they are YOUR goals and you need to work toward them.

Handout: Distribute the Financial Goal-Setting Worksheet.

## Set SMART Goals

-   Measurable
-   Achievable
-   Realistic
-   Specific
-   Time-Related

**Notes:**
Financial goals will vary in length but every goal must be SMART:
  Specific
  Measurable
  Achieveable
   Realistic
   Time-related (i.e., with a target date to achieve)

Use the Financial Goal-Setting Worksheet to develop an “action plan” to achieve your financial goals.

First, in column 1, describe your financial goals.  In column 2, determine the approximate cost of each financial goal.  For example, a used car that costs $6,000.

Next, in column 3, list the month and year that a goal needs to be achieved and calculate (in column 4) the number of months available to save.  In column 5, indicate the month and year that savings will begin.

In column 6, you simply “do the math.”  Divide the cost of the goal by the number of months to save.  For example, $6,000 divided by 28 months would require monthly savings of $214.

## Develop a Spending Plan

- Income
- Expenses
- Savings

**Notes:**
A spending plan (a.k.a.,  budget) is a plan for spending and saving money.  “Spending plan” sounds more positive than “budget,” which, like “diet,” is often associated with denial and deprivation.

Making a spending plan is not difficult, but it does take time and commitment.

The three parts to a spending plan are: income, expenses, and savings (for emergencies, future goals, etc.).

You can’t save money unless you know what you make and what you spend.  We may THINK we know what we spend but most people don’t have a clue about seemingly “small” expenses that add up over time (e.g., coffee and donuts, lottery tickets, cigarettes, gifts).

Financial experts advise sitting down with pencil and paper to do some planning.

Handout: Distribute the Spending Plan Worksheet.

## Know Your Income

**Sources of Income**
- Salary, wages
- Alimony, child support
- Public benefits
- Other?
**Gross-** What you earn
**Net- **What you keep

**Notes:**
This slide describes common sources of household income.

Ask Learners: Can you think of other household income sources?
Answers could include capital gains on investments, gifts, tax refunds, contest prizes.

Gross income is the total amount of income from your wages or salary before payroll deductions.

Net income, or take-home pay, is what you receive when you cash your check after all deductions are subtracted from your paycheck.

Ask learners: What are some payroll deductions that are subtracted from your gross income?

## Know Your Expenses

- Fixed
- Controllable (Flexible)
- Periodic (Irregular)

**Notes:**
Note on the Spending Plan Worksheet that there are three categories of expenses in a spending plan: fixed, controllable (flexible), and periodic (irregular). 

Fixed expenses are expenses that remain the same from month to month.

Ask learners: What are some examples of fixed expenses? (e.g., rent, mortgage, insurance premiums, car loan payments, utilities if on an equal payment plan, etc.).

Controllable (flexible) expenses vary from month to month.

Ask learners: What are some examples of flexible expenses? (e.g., food, entertainment, clothing, gifts, utilities if not on an equal payment plan, etc.).

Periodic (irregular) expenses are not paid monthly.  Instead, they may be paid two, three, or four times a year.

Ask learners: What are some examples of occasional expenses? (e.g., property taxes, some utility bills, college tuition, vacations, etc.).

## Pay Yourself First

- Put set amount into savings
- Do regularly
- View savings as an “expense”

**Notes:**
Before you spend any money, pay yourself first. 

“Pay yourself first” means that you are putting money into savings (for emergencies and/or  to reach your goals) as soon as you earn it.  Identify an amount that you can deposit regularly.  Then stick with the plan.  

Pay yourself first on a regular basis.  Do this every week or every month or whenever you get paid.  You can have your paycheck deposited directly into a bank account.  Your bank can then automatically transfer a specific amount into savings.  You won’t miss the money if you don’t see it!

It is helpful to view savings as a regular “expense” that you MUST pay, just as you would your rent, utilities, or car loan payment.

When you are recovering from bankruptcy, it is important to have some savings to fall back on for emergencies, so you don’t need to borrow from others or use a credit card.

After you have paid yourself, determine the amount of income you have left to cover your household expenses.

## Adjust Your Plan

- Track your income and expenses
- Pay yourself first
- Cut expenses
- Increase income
- Add a “fudge factor”

**Notes:**
Spending plans need to be reviewed and adjusted from time to time.  If you don’t, your plan can get off track.  There are always things that come up that we haven’t planned for.  

Ask learners: What are some examples of unexpected expenses? Example: a sick child.

By reviewing and adjusting your spending plan, you’ll be able to reach your goals more quickly.  The steps are simple:

First, track ALL income and ALL expenses for several months.  You can’t fix what you don’t know!  Only YOU can do this since it’s YOUR money.  

Next, always pay yourself first.  This means that you are putting money into savings before you do anything else.  Preferably do this through some type of automatic savings plan.

Finally, if your spending plan doesn’t balance and you’re spending more than you earn, expenses must be cut and/or income has to increase.

It is also a good idea to include a “fudge factor” (e.g., $50 a month) in your spending plan to have money for unexpected expenses. In others words, be prepared for the unexpected.

## Cut Expenses

- Focus on needs
- Cut back on wants
- Wait for sales
- Shop around
- Look for alternatives
- Change habits
- Other ideas?

**Notes:**
It’s important to keep your expenses lower than your income.  Getting into debt turns into a big problem over time.  This slide lists things that you can do to cut expenses.

First, focus on what you and your family really need.  Food, shelter, clothing, and transportation to work are a few basic needs.  Needs must be met first.  Many times we confuse needs with wants.  Talk with your family and discuss what is really needed. 

Cut back on your wants.  Wants will ALWAYS exceed the amount of money we have to spend.  When you find you want something, ask yourself WHY?  How will this help me reach my goals?  If you want to buy a piece of jewelry, ask yourself why?  Is is because your friend just bought something new?  Are you trying to impress someone? 

Wait for sales before you buy.  Time gives us the opportunity to really think about our goals.  Shop around and find the best price.  By comparison shopping, you may find a better value or a different price.  Look for alternatives.  Do you really need a new car?  Could you buy a used car?  Or take the bus or car pool?  Could you buy at garage sales, flea markets, or thrift shops?  

Change your habits.  If, for example, you smoke, try to cut back at least 2 packs of cigarettes a week.  This will save you about $10.  If you drive to work, think about walking to work or care pooling one or two days a week instead.

Ask learners: What are some other ideas for reducing household expenses?

## Follow The Rule of Three

| Provider #1 | Provider #2 | Provider #3 |
| --- | --- | --- |
|  |  |  |
|  |  |  |
|  |  |  |

**Notes:**
A good way to shop around for the best deal and save money is to follow “The Rule of Three.”

Whenever you’re shopping around for a product or service, especially one that you have not shopped around for before, compare at least three product or service providers.

Make yourself a table like the one shown on the slide so you can make an “apples to apples” comparison of product or service costs and features.

## Increase Income

- Work overtime
- Get part-time job
- Barter or swap
- Develop and use skills
- Other ideas?

**Notes:**
If you’ve cut your expenses back as far as possible and still don’t have enough income to cover them, you will have to increase your income.  

Some employers may allow you to work over time or extend your hours.

Another option is to get a part time job in the evenings or on weekends.  Some part time jobs can even be done at home such as child or elder care.

Look for ways you can barter or swap with others.  For example, a  friend may watch your children after school while you work if you cut her hair and do her nails.  No money is involved, but you each eliminate expenses.  Your neighbor may mow your lawn each week if you help paint their house.  

Another way to increase your income is to develop and use new skills. For example, if you learn to use a computer, you may be able to get a part time job doing data entry or preparing the church newsletter. If you learn to do household repairs, you could earn money fixing things for others. 

Remember – to balance your budget, you must reduce expenses and/or increase income.  There is no other way!  Extra money should go into savings, if possible, or to pay off outstanding bills.

## Save For Emergencies

- Financial experts advise saving 3 to 6 month’s expenses
- Keep in liquid assets (e.g., money market fund, bank savings account)
- Get started ASAP and save as much as possible

**Notes:**
Financial experts often recommend keeping 3 to 6 month’s expenses in liquid assets.

“Liquid” means that assets can be converted quickly into cash without loss of value.

Recommended places to put an emergency fund include money market mutual funds, bank or credit union savings accounts, and short-term CDs.  These so-called “cash-equivalent assets” usually don’t pay high interest rates, however, so shop around (by following “The Rule of Three”) to get the best deal.

Start building your emergency fund as soon as possible so you have money to fall back on, if needed.  Save as much as you possibly can.

## Why Keep Records?

**Necessary in case of death, fire or theft.**
**Show proof of payments & ownership of property****.**
**Protection in case official records are lost or destroyed.**
**Assists in tax preparation**
**Makes locating information easier.**

**Notes:**
The slide lists five very good reasons to keep good financial records.

First, records are required in case of death, fire, or theft, when you need information to prove ownership of property (e.g., to probate an estate or make an insurance claim). 

Records (e.g., cancelled checks or receipts) also show proof of payment and provide proof of various transactions - sale of car, divorce, etc.

Good household records also protect you if “official” records are lost or stolen.

In addition, they assist in preparing your federal and state income taxes - tax forms,  W-2 statements, 1099 forms, receipts for itemized deductions, etc. all in one place.

Finally, good financial records also make locating information easier and save time looking for things.

## Getting Started

- Do what works for you.  Everyone is different.
- K.I.S.S. Principle
- Find a specific place for storage.
- Show and tell everyone in the family about the new system.

- Collect supplies
- file box or cabinet
- accordion folder
- file folders
- notebook
- calculator
- box or basket for incoming mail & bills
- Use a shredder

**Notes:**
No one record-keeping system works for everyone.  Do what’s right for you

K.I.S.S. = Keep It Simple, Stupid.  If your record-keeping system is too complicated, you won’t use it and no one else can help you.  If all your papers are in a big heap in a desk drawer or a box, you’ll spend lots of time looking for things.

Get everyone involved based on their age and abilities.  Tell someone outside your home about the system in case of an emergency.  Encourage other family members (not living in your home) to tell you where and how they keep their financial records. 

Supplies need not cost much and need not take up much space.  The exact amount of supplies needed depends on your needs and the amount of paperwork you have. The types of supplies needed are listed on the slide (e.g., file cabinet, file folders).

Ask learners:  What type of financial record-keeping system do they use now?

Remember: identity theft is rampant these days and millions of people are victims every year. Shred unnecessary papers with sensitive personal data such as bank account numbers and Social Security numbers!!

The best type of shredder is a crosscut shredder, which reduces documents to small confetti-like pieces.

## Where to Keep Records

**Wallet **(e.g., health insurance card, credit cards, driver’s license)
**Safe Deposit Box **(e.g., car title, certificates, deeds, military records)
**At Home **(e.g., financial records, wallet and safe deposit box inventory)

**Notes:**
Financial records are usually stored in one or all of the following three places.

In your wallet, you would carry documents that you need every day, such as a health insurance card, credit cards (consider just carrying one for emergency use rather than every credit card you own), and your driver’s license. 

In a safe deposit box, you would store valuable documents, such as stock certificates, savings bonds, and car titles, as well as certificates documenting “life events” such as births, deaths, marriage, divorce, etc.

At home, in a file cabinet or desk drawer or cardboard box, you would store such things as bank statements, receipts for tax deductions, and a list of the contents of your wallet and safe deposit box.

## Know Your Personal Property 

- Need for insurance claims in case of fire or theft
- May be a list, photographs or videotape or combination
- The more detail, the better

- List - date of purchase, cost (receipts are good), make and model, serial number.
- Photographs - take of everything in rooms & drawers & closets.  Get close.
- Videotape, as above

**Notes:**
Your financial records should include an inventory of personal property.  This will be needed for insurance claims in the event of fire or theft. 

Your documentation can include a list, photographs (regular or digital), and/or a videotape of your personal property.

On your written list, be sure to include the date of purchase and the make and model and serial number of property such as electronic equipment and appliances.

Store your property ownership documentation away from your house, such as in a safe deposit box or secure storage locker.

## Financial Records

- List of accounts - location and numbers
- Income tax returns
- Bank information - pass books, statements, and canceled checks
- Credit card information and list
- Education, employment and Social Security records
- Names and addresses of financial advisors

**Notes:**
This slide, and the next one, lists the types of items that should be included among your financial records.

Be sure to tell close family members and/or the executor of your estate about the location of these documents in case they are needed in an emergency.

It is a good idea to create lists of all savings accounts and credit card accounts, as well as a list of financial advisors (e.g., attorney, insurance agent) so that this information is easily accessible.

Handout: Distribute A Record of Important Family Papers.

## Financial Records

- Safe deposit box information
- List of assets (e.g., stocks and bonds)
- List of real estate ownership information
- Receipts for major purchases
- Monthly or annual spending plan (budget)
- Net worth statements (assets minus debts)

**Notes:**
This slides lists additional items that are recommended to keep as part of your financial records.

Rutgers Cooperative Research and Extension has several worksheets to assist you with managing your financial records, including worksheets for budgeting and calculating net worth.

For further information, see www.rce.rutgers.edu/money2000.  Click on “Resources.”

## What is Insurance?

- Risk protection
- Paying for someone else to share the risk with you

**Notes:**
Another important aspect of financial security, in addition to savings, is insurance. 

What is insurance exactly?  When we buy insurance, we are buying risk protection.  We are paying into a pool of money for other people to share the risk of loss (e.g., a house fire) with us.  The price we pay for this risk protection is called a premium.

Back in the 1700’s, Benjamin Franklin first developed the idea of insurance for fire protection.  He asked homeowners in the area to each pay a little bit into a fund to cover costs if a fire burned the homes.  

Before this, there was no such coverage.  By having many people pay a little each, the risk was spread and everyone could tap into the money if it was needed.

Insurance coverage basically works the same way today.  Many people pool their premium dollars to cover their risk of loss.

Ask learners: What types of insurance policies do you own?  Why?

## Common Types of Insurance 

- Life
- Health
- Liability
- Auto
- Property (a.k.a., homeowners, renters)
- Property & Casualty or P&C

**Notes:**
We insure, or buy protection, for many things.  For example, life insurance pays money to our beneficiaries when we die.  Life insurance is especially needed to provide money when a family bread winner (earner) dies and leaves dependents.

We purchase health insurance to help cover the costs of major medical expenses (e.g., surgery, cancer treatment).

Liability coverage protects us if someone is injured on our property or due to something we may do.  It is included in both auto and homeowners and renters policies and additional coverage may also be purchased with an umbrella policy.

Auto insurance includes both liability coverage and coverage for the car itself.  It can cover damage to property done by a car, such as if a car hits a fence or telephone pole.

Property insurance covers tangible property such as buildings, furniture, and equipment.  If you have a home, you’ll want to purchase enough insurance to protect your investment if there is a fire or bad storm.  Renters can purchase property insurance to cover their furniture and appliances, for example.  Property insurance is often referred to as “property and casualty” or P&C.

## Basic Insurance Terms

- Policy = contract
- Coverage = what insurance pays for
- Term = length of contract
- Premium = cost of contract
- Deductible = what you pay before insurance company pays
- Claim = request for payment

**Notes:**
Understanding the basic words associated with insurance is important. Your insurance policy is a contract.  A written policy will be sent to you by the insurance company. The policy spells out what is and is not covered, so read it carefully.

Coverage is what an insurance policy will pay for.  Coverage can include all or part of losses due to fire, theft, injury, or storms.  Coverage generally excludes damage due to floods, wars, or terrorism.  If you have a situation in which your insurance will pay, you will file a claim or make a request for payment to the insurance company. Claims can be accepted or denied.  Too many claims will make you a higher risk and may lead to cancellation of your coverage.

The term is the length of time that an insurance policy contract is good.  Most insurance policies are sold on a yearly basis.  However, you may pay monthly or quarterly.

The premium is the cost of the contract or policy and refers to the amount you pay.  If you pay $100 a month, you would say that “your premium costs $100 a month.”

Most insurance policies require that the person who is insured pays a part of each claim.  The deductible is the amount you’ll pay before the insurance company pays.  The higher the deductible (e.g., $1,000 versus $250), the lower the premium.  By choosing a higher deductible amount, you are indicating that you are willing to assume more risk in the event of a loss.

..

## What Impacts Costs?

- Amount of risk you want to accept
- Lifestyle and behavior
- Past insurance experience
- Price of items covered
- Statistics

**Notes:**
There are many things that impact the cost of your insurance coverage.

First of all, the amount of risk you want to accept will determine the cost.  By increasing your deductible, you will assume more risk and your premium will be lower.

Your lifestyle and behavior will also impact the cost.  If you have a history of bad driving, for example, you will be considered a high risk.  Your insurance premiums will be higher than for someone who is a good driver.  Where you live, the type of home you live in, how you maintain your home, how you pay your bills, and other behavior patterns will also impact your rates.

Your past insurance experience will also impact costs.  If you have made many claims to an insurance company, your rates will generally go up...or your policy could be cancelled.

The price of items covered by insurance will also impact costs.  A large home will cost more to rebuild if there is a fire than a small home.  A fancy new sports car will generally cost more to fix than a used sedan.  

Statistics about your area and your age will also impact rates.  As you get older, you are closer to death.  Life insurance costs will generally increase as we get older.  If you live in a high crime area, you home insurance will be higher than if you live in a low crime area.  It’s all based on risk!

## Shopping For Insurance

- Decide coverage you need
- Decide risk you want to take
- Get three quotes
- Check out insurance company ratings

**Notes:**
When you start shopping for insurance, decide what type of coverage you need.

  Do you have dependents, such as a spouse and/or children, and need life insurance?  
  Do you rent or own your home?  
  What would it cost you to replace your furniture, car, or clothing if there was a fire?
  Are you covered for the loss of income due to disability as a result of an illness or accident?

Decide what risks you are willing to take.  You certainly don’t want to risk losing your investment in your home so be sure to insure it for the full cost necessary to rebuild it.

Shop around to various insurance companies.  Get at least 3 quotes (remember “The Rule of Three”)  for coverage and compare policy features and costs.  Check the rates for various levels of coverage and deductibles so you can determine the most cost-effective policy for your needs.

Then check out the insurance company’s background.  Contact the NJ Department of Banking and Insurance for information about any insurance company that you are considering.  The telephone number for the insurance division is 609-633-7667.  You can also check out an insurance rating company, such as A.M. Best.  Their reports are generally found in the reference section of large libraries or you can visit their Web site at www.ambest.com. 

## Control Insurance Costs

- Buy home and auto insurance from same company
- Add security devices
- Seek discounts
- Raise your deductibles
- Consider term life insurance

**Notes:**
When you buy insurance coverage, it is important to control your costs.  Since insurance is risk protection, you can keep costs down by reducing risk.   Here are a few things you can do:

  Raise your deductibles.  Raising your deductible from $250 to $500 may save you several hundreds of dollars in insurance costs each year.

  Buy your homeowners or renters and auto insurance from the same company, if possible.

  Make your home or driving safer. Take a defensive driving class. Install smoke detectors.  Wear seat belts. Fix broken sidewalks which could cause a fall.

  Add security devices and alarms that will reduce the likelihood of a theft.

  Ask your insurance agent about available discounts (e.g., for defensive driving course).

  Generally, choose term insurance over whole life to get more coverage per premium dollar.

  Review your coverage every year to be sure it covers what you have.  Things change and costs change, so be sure you have enough coverage to protect against the large risks in your life (e.g., disability, liability, death of a breadwinner, damage to home). 

## Generally Unnecessary Insurance

- Credit insurance (life, disability, unemployment)
- Life insurance for children
- Cancer insurance
- “Double Indemnity” insurance riders
- Hospital indemnity policies
- Flight insurance
- Car rental collision-damage waivers

**Notes:**
Insurance should be purchased according to the “large loss principle.” In other words, the size (i.e., dollar amount) of a potential loss, rather than its frequency, should be the determining factor in purchasing coverage.

You want to spend your insurance dollars to protect against risks that could wipe out your assets (e.g., house fire) and/or claim future income for years to come (e.g., a court judgement).  

Coverage also needs to be broad enough to cover any number of financial risks (e.g., any medical condition and not just cancer).

This slide lists types of insurance policies that are generally unnecessary, either because 
  The risk of financial loss is small (e.g., life insurance for children) or 
  Coverage is very limited (e.g., cancer insurance and flight insurance and hospital indemnity policies and double indemnity riders) or 
  Coverage should be provided by a broader type of policy (e.g., a term life policy instead of credit life insurance and auto insurance instead of collision-damage waivers).

## What is Credit?

- Using someone else’s money today and paying it back in the future
- Obligation to pay back
- Pay a fee to use the money -- interest
- Responsibility – not a right!

**Notes:**
Let’s face it...overextended credit is the reason that many people file for bankruptcy.  Many people are living way above their means and “extending” their income with loans and credit cards.  To use credit wisely, we must first understand what credit is.  Credit is basically using someone else’s money TODAY and promising to pay it back in the future.  

When you use credit, you have an obligation to pay the money back.  In some cases, such as a car loan, you will pay a specific amount each month for a designated period of time, such as 36 months.  For other types of credit, such as credit cards, you have a choice of paying what you owe all at once or making partial payments.  If you use a credit card, you should try to pay off the amount due in full every month.  At the very least, pay more than the minimum payment.  

Ask learners: What happens when you make only minimum monthly payments?  
Answer: High interest costs and long repayment period.

Credit is not free. The company or person lending you money charges a fee called interest.  Interest is usually charged as a percentage of the amount borrowed.  For example, if you borrow money for a car loan, the lender may charge you 4% or 8%.  The lower the interest rate, the lower the cost.

Getting and using credit is a responsibility – not a right.  You earn the right to use credit when you show you can handle the responsibility.  After filing bankruptcy, you may be denied credit or charged a higher interest rate for loans or credit cards.

## Forms of Credit

**Short-term (Service)** – Utility bills
**Revolving **– Visa, MasterCard
**Installment –** Car loan, mortgage
**Secured  **-Backed by property or cash
**Unsecured** – Based on ability to repay

**Notes:**
Credit comes in various forms.  You may even already be using credit without knowing it.  You are using credit if you get a phone or utility bill.  The company is letting you use their service based on your promise to pay them.  These types of credit arrangements are called short-term (or service) credit.  You are expected to pay the full amount by the due date.  

With revolving credit, you pay all or part of the balance and can use credit up to a specified limit.  Most major credit cards are revolving credit.  You use the card, you pay the balance due (or, at the very least, the minimum payment), and you can continue to use the card.  Interest will be added to the amount you do not pay.  Most credit cards have a limit or maximum amount you can charge and charge a fee (e.g., $35) if you exceed it.  Similar fees are also charged if payments are late.

Installment credit is generally used for larger purchases such as a home, furniture, or a car.  With installment credit, you have a specific agreement to pay a specific amount each month.  The installment payment includes a portion of the amount borrowed (principal),  plus interest.  With installment credit, you pay the same amount each month.  

Installment credit is usually secured credit.  It is backed by property (e.g., a car) or cash that can be seized by a lender if payments are not made.  Unsecured credit is simply based on a borrower’s ability to repay, with no property pledged as collateral.

## Costs of Credit

- Annual percentage rate (APR)
- Annual fees
- Late fees
- Over-the-limit fees
- Transaction fees
- Penalty APRs

**Notes:**
Credit is not free.  Lenders make money by loaning people money and charging interest and fees.  

The basic cost of credit is the Annual Percentage Rate or APR.  The APR is what a lender charges for using credit. The lower the APR, the less you pay.  For example, an APR of 4% means you are paying the lender 4 cents for every dollar borrowed.  On a $10,000 loan, you would pay $400 with an APR of 4%.  If the APR was 12%, you would pay $1,200 to borrow that same $10,000.

Some credit card companies charge an annual fee for the privilege of using their credit card.  Fees can run up to $100.  If you want a credit card, find a company that offers a card at a low or no fee. Check www.cardtrak.com and compare credit card rates.  

Lenders can also add additional costs into their credit agreement. These could include fees if you make payments late (late fees) or go over your credit limit (over-the-limit fees). They may add penalties if you miss more than one payment or are even a day late in paying.

There are also transaction fees, such as those charged for cash advances and balance transfers.

Some creditors also charge high penalty APRs, often exceeding 20%, if you are late with a payment, even if it is with another creditor!

These costs all add up.  If you can’t handle credit, don’t use it.  Credit can cost you money.

## How Long Will it Take to Pay?

- How long will it take to repay $3,000 on your credit card with minimum monthly payments of 2% of the outstanding balance and an 18% APR (assuming no additional charges are made)?
-  10 years?
-  20 years?
-  30 years?

**Notes:**
Many people do not pay off their credit card debt each month and pay only the minimum due.  

What does this cost them?   Here’s an example.

Ask learners: What is the correct answer?

According to the Credit Card SmartsTM calculator from Advantage Publications, the correct answer is 30 years.  

The borrower would pay a total of $10,013, including $7,013 in interest charges.

## Pay Down Your Debt

- Figure your TOTAL credit debt
- Determine interest and fees
- Pay off the highest interest rate first
- Pay off small balances
- STOP charging
- Find a lower interest rate

**Notes:**
Credit isn’t free.  We pay for the privilege of using someone else’s money.

Paying down debt must be part of your monthly spending plan (budget).

First, figure the TOTAL credit debt that you owe.  Then look at the interest and fees you are paying.  Are you paying late fees or only paying the minimum?

Pay off the highest rate debt first (e.g., 20% + department store credit cards).

Then pay off small balances to wipe out these debts completely.

Stop adding debt to you life...STOP charging!

Find a lower rate credit card, if you can, or ask your current creditors for an interest rate reduction.  Often, they will do this, upon request, rather than lose someone as a cardholder.

Sometimes, by transferring the balance you owe to another card with a lower rate, you’ll save money in the long run.  Beware of transaction fees, however.

## Your Credit Report

- Basic identifying information
- Credit history
- Collection agencies
- Courthouse records
- Employers
- Inquiries by **potential **credit grantors

**Notes:**
Creditors will go to a credit reporting agency to get information about your financial history.  This information is contained in your credit report.  There are 3 major reporting agencies nationwide – Experian, TRW, and Equifax.  These agencies compile information and sell it to creditors.

Your credit report contains basic information about you – your name, address, past addresses, date of birth, Social Security number, spouse’s name, employer, etc.

It will also contain information about loans made to you by creditors. The information will include the amount borrowed, the size of your credit line, dates of transactions, amounts you currently owe, if you were past due in any payments, and your current loans.

If you had a debt that had to be collected through a collection agency, that information will also be included in your credit report.  Other information about you is obtained through courthouse records.  This includes information about bankruptcy filings, liens, and judgments against you..

If you apply for credit, inquiries by potential credit grantors will also appear in the report.  Too many inquires may make it appear that you are asking for too much credit. Self-inquiries about your own credit report or inquires by creditors for marketing purposes (e.g., sending “pre-approved offer” credit card solicitations) do not count against you, however.

## Getting Your Report

- Free, if denied credit (within 60 days)
- Free once per year nationwide
- See _www.annualcreditreport.com_
- Call credit reporting agency
- Send a written request
- Stagger requests (every 4 months)
- Equifax
- Experian
- Trans Union

**Notes:**
Under federal law, you have the right to see your credit report and to correct any mistakes or incorrect information found in the report.  Negative, but correct, information (e.g., charged off debts, late payments) will remain for up to 7 years and bankruptcy for up to 10 years.

If you are denied credit, you can get a free copy of your credit report.  Simply send a copy of your rejection letter along with a request for your credit report within 60 days of when you were turned down.

As a result of the Fair and Accurate Credit Transactions Act (FACTA), you may request a free copy of your credit report each year. An easy way to do this is online at www.annualcreditreport.com.  You can also use the following contact information:
  Experian:	888-397-3742		www.experian.com	
  Equifax	800-685-1111		www.equifax.com
 Trans Union	800-888-4213		www.tuc.com

It’s a good idea to look at your report at least once a year to be sure the information in it is correct and to check for evidence of identity theft.

Rather than request credit reports from all three credit reporting agencies at once, stagger your free report requests every four months so that you can view a current report more frequently.

## Danger Signs

- Paying bills late
- Fees and penalties on bills
- Creditors calling
- Checks bouncing
- Juggling payments
- High debt-to-income ratio

**Notes:**
Credit can be a useful financial tool.  Yet people often get into problems with credit.  Watch for the following danger signs:

  Are you paying your bills late after the due date?  If this happens on a regular basis, you may be headed for credit problems.

  Are you paying fees and penalties on your loans and credit cards?  When these costs start to appear, it is a warning that problems are occurring.

  Creditors may start calling you at home to remind you to pay your debt.  Do not ignore these calls.  If you are past due on your bills, ask your creditors to work with you on a repayment plan.

  Are your checks bouncing because you don’t have money in your account to cover them?  Returned checks can cost a great deal because a fee is charged by the bank and the company or person you wrote the check to.  You may also be unable to open future bank accounts.

  Are you “juggling” payments, paying credit card A one month and credit card B the next?

  If consumer debt payments are 15% to 20% or more of take-home pay, your debt-to-income ratio is another indication that you are overextended and need to scale back your debt.

## Alternatives to Credit

- Rethink your goals
- Pay cash
- Save for emergencies and goals
- Use a debit card
- Postpone or do without

**Notes:**
Credit is a responsibility and it may not be right for you.  You must decide for yourself if you can handle credit.  If it doesn’t help you, then don’t use it.

So what do you do instead?  Below are some alternatives to the use of credit:

  Rethink your goals...can they be tweaked (e.g., lower cost?) or financed in a different way?

  Pay cash for purchases.  This way you can’t buy something you can’t afford.

  Save money for emergencies or to make a purchase and/or buy new rather than used.  

  Use a debit card instead of a credit card.  A debit card is tied to your bank account.  Again, you can’t spend what you don’t have.

  Postpone or do without something that you truly can’t afford.

For major purchases, you may find that credit is the only way to go.  For example, few people can save enough to pay cash to buy a home.  You’ll need a mortgage to buy your home or possibly a business loan to start your business.  Don’t borrow more than you can afford to pay back, however.

## Resources For Consumers

- Rutgers Cooperative Research and Extension
- _[www.rce.rutgers.edu/money2000](http://www.rce.rutgers.edu/money2000)_
- _[www.investing.rutgers.edu](http://www.investing.rutgers.edu/)__ _
- Consumer credit counseling agencies
- NJ Department of Consumer Affairs
- County and non-profit human service agencies
- NJ Housing & Mortgage Finance Agency
- Federal Citizen Information Center
- _[www.pueblo.gsa.gov](http://www.pueblo.gsa.gov/)__ _

**Notes:**
This slide lists national, state, and local resources for consumers to obtain additional financial information, counseling, and other support services.

Government agencies usually have limited dollars to promote their services so it is often up to consumers to reach out for help.

## Key Consumer Protection Laws

- Fair Credit Billing Act
- Fair Credit Reporting Act
- Fair Debt Collection Practices Act
- Fair and Accurate Credit Transactions Act
- State consumer fraud laws
- Home improvements
- Car sales
- Mail fraud
- Telemarketing

**Notes:**
This slide lists key consumer protection laws.  While laws such as these are important, they cannot prevent every problem.  Often, by the time state consumer regulators hear about a fraudulent scheme, it is too late to recover victims’ money.  When it comes to fraud, a healthy skepticism by individual consumers is the best line of defense.  
Remember the old saying, “If it sounds too good to be true, it probably is.”

Here is a brief summary of the laws listed on the slide:
  Fair Credit Billing Act- Federal law regarding credit billing errors.  A key provision is allowing consumers to refuse to pay for shoddy merchandise and to dispute the charge.

  Fair Credit Reporting Act- Federal law that allows Americans to see what is contained in their credit files and to dispute inaccurate information.

  Fair Debt Collection Practices Act- Federal law that regulates what professional debt collectors (e.g., collection agencies) can and cannot do to collect payments.

  Fair and Accurate Credit Transactions Act (FACTA)- Federal law, passed in 2003, that allows every American to receive one free credit report annually from each of the three major credit reporting agencies, upon request (call 877-322-8228 or go to www.annualcreditreport.com).

## Closing Thoughts

- Live below your means
- Every small step makes a difference
- Pay yourself first for goals and emergencies
- Pay off credit cards as quickly as possible
- Follow “The Rule of Three”
- Know the difference between needs and wants
- Buy insurance for large financial risks
- Develop a workable spending plan
- Start Today! Take charge of your financial life

**Notes:**
This slide summarizes the key concepts that were covered during the class (review).

Ask learners: are there any questions on anything that was covered?

Collect evaluation forms.

Distribute continuing education certificates.