I - C.A.R.E.

1. I - C.A.R.E. Idaho Credit Abuse Resistance Education A program of: U.S. Bankruptcy Court District of Idaho Developed by U.S. Bankruptcy Court, District of Idaho, ICARE Committee and the Commercial Law and Bankruptcy Section, Idaho State Bar

2. Why Does This Matter Someday, you may want to: • Buy a car • Qualify for a Student Loan • Rent an apartment or buy a house to You?

3. What Will You See? • Financial Misfortune • Causes • Solutions • Managing to avoid Financial Misfortune • Planning • Saving • Managing Credit • Managing Information

4. Financial Misfortune Causes & Solutions

5. Causes of Financial Misfortune • Surprises: Large medical bills / Car repairs • Health issues – illness interrupts work • Job loss / Business failure • Over spending / Poor money management

6. Solutions for Financial Misfortune • Become informed; stay informed • Work out your debts • Seek Consumer Credit Counseling • Bankruptcy – Debt relief under Federal Law

7. Bankruptcy Basics • Assets are used to pay debts through federal court programs • Fresh Start • Many debts are “discharged” and • Collection actions are halted

8. Cornerstones Truthfulness & Cooperation

9. Who Files Bankruptcy? • Consumers file many more bankruptcies than businesses 1,064,927 consumer bankruptcies were filed in 2008 (41% increase over 2007)) 18-24 year olds are in the fastest-growing group of filers (96% increase over ten yrs.)

10. Consumer Bankruptcy: 7 & 13 Chapter 7 “Liquidation” • “Eligible” persons file, • A Trustee collects saleable assets & • Distributes proceeds to creditors • Discharge can occur in about three months; it prevents further collection

11. Chapter 7 Liquidation • First - Filers attend Credit Counseling; then • Prepare and file extensive documents • Provide complete information under oath • An income test determines eligibility • Last - Filers attend Debtor Education

12. Chapter 13 Repayment • First - Filers attend Credit Counseling • Prepare and file extensive documents • Provide complete information under oath • Propose and fund a monthly repayment plan

13. Chapter 13 -Con’t. • Repayment plans last 3-5 years • Monthly payments go to a Trustee, who pays the bills • Debtor Education is required • Discharge after “substantial completion:” further collection ends

14. Costs of Bankruptcy • Attorney fees • Attorney not required; advisable • Options are controversial • Other Fees: Court, credit counselors and debtor educators • Cannot file again for many years • 10 years on Credit History • Other effects

15. Managing to Avoid Financial Misfortune Planning Saving Managing Credit Managing Information

16. Planning • 1. Set SMART Goals • Specific, Measurable, Attainable, Realistic, Time • 2. Create a Plan • 3. Implement the Plan

17. Why Plan? • Make your dreams come true Make life happen! • Avoid financial misfortune • Failure to plan brings money worries, overdrafts and bad credit • Prepare for a rainy day • Surprises happen . . . be prepared

18. Set SMART GoalsSpring Break Example • Specific: Plan Spring Break Trip • Measurable: $350 for needs (food, gas) $200 for wants (shopping) • Attainable: Gifts + savings ($40/week) • Realistic: Share costs with friends • Time: From Jan. 1 to Spring Break

19. Create a Plan • Also known as (gasp) - a “Budget” • A budget is a plan or “blueprint” for handling your money

20. Don’t Like the Word “Budget”? Call it your “Personal Financial Survival Guide” (PFSG)

21. PFSG Examples Income & Expenses

22. INCOME BUDGET (PFSG) • Take Home Pay _________ • Interest on Savings _________ • Gifts _________ • Allowance _________ • Other • Gov’t programs ___________ • TOTAL $

23. EXPENSE BUDGET (PFSG) • Savings (PYF) _________ • Car _________ • Clothes _________ • Recreation _________ • Credit cards _________ • Other __________ • TOTAL $

24. “You Can’t Always Get What You Want . . .”

25. Needs versus Wants • Needs • SAVINGS • Shelter • Food • Clothes (have to have) • Surprises (broken ankle) • Wants • Concerts, MP3 • Clothes (want to have) • Spring Break Trip

26. Budget Tips • Pay yourself FIRST! (PYF) • Savings: A bill that you owe yourself • Target: 10% of gross income • Just 1 dime out of every dollar • Make the most of your money • Shop sales • Use coupons • Read fine print

27. IMPLEMENT the PLAN Start by Saving

28. Savings Options • “Passbook” Savings Account • Pays a little interest • Readily available any time • Can add to it any time • Certificates of Deposit (CDs) • Pay higher interest than savings accounts • Total may be locked up for time selected • Can add to some, but not all

29. Saving and the Time Value of Money Relationship of: Time, Money & Rate of Return

30. COMPOUNDING The 8th Wonder of the World!

31. Compounding • Money earns interest • The new total earns more interest, and it keeps compounding . . . • The sooner you start—the sooner compounding goes to work for you! • Develop the “saving habit” rather than focusing on the amount

32. Compounding Examples • $1,000 in an account or a CD that earns 5% interest will grow • In 1 year to $1,050 • In 2 years to $1,102.50 • In 3 years to $1,157.63 • In 25 years to $3,481.29 Without depositing another nickel!

33. Managing Credit Buy Now, Pay later

34. Credit • Someone loans you money-Principal • You promise to pay it back • With interest • Over time • Examples: • Credit Cards • Car Loans

35. Credit Cards: Reasons to Have one • Emergencies • Establish a credit history • Make large purchases • Develop budgeting skills • Safety and convenience

36. Choosing a Card • Annual Fee • Interest Rate --Introductory --Balances v. Cash Advances --Fixed v. Variable --Default Interest • Grace Period • Method of Computation • Rewards

37. What percentage of high school students use credit cards on a regular basis? • 5% • 20% • 33% • 55%

38. Answer • 33% of 18-19 year-olds have at least one credit card in their own name • 71% of young adult card holders revolve balances compared to 55% of all cardholders

39. Credit: Revolving the Balance Interest: • The cost to use someone else’s money • The higher the interest rate, the higher the cost • The longer to repay, the higher the cost • Compounding at work against you • Fees may also increase the cost of credit

40. Credit: the Minimum Payment? • 4% of the balance each month • If not made, you may be charged late fees and higher interest.

41. On a credit card balance of $500, your minimum monthly payment would be? • $10 • $20 • $30 • $40

42. Answer: $20 Of the $20, more than $5 would go to pay interest. The required minimum payment is 4% of the balance.

43. The average “late fee” on a credit card is? • $15 • $50 • $34 • $25

44. Answer: $34 The average fee for not making the minimum payment on time. Interest rates may go up to 30% or more if your payment is late.

45. Credit Example You use a credit card to buy a $2,000 mountain bike : • The interest rate is 18% • You make minimum payments each month • It will take 8.2 years to pay off the bike • The bike ends up costing $3,073 • $1,073 in interest (compounding against you)

46. OR Use a credit card to buy a $2,000 bike • Pay the entire balance during the grace period • The bike costs $2,000 • The interest rate doesn’t matter—you pay NONE • You are building a credit history

47. Compare Revolving to Investing • With $9,200 in credit card debt, payments will be $153 a month in interest alone. • Investing $153 every month for life would produce $401,600 at 7%. • Making only the monthly minimum payment is treading water.

48. After a tough day at school you splurge on a Big Mac combo meal. You charge it on a card with a $1,000 balance. You pay the minimum each month.What will the $5.00 meal really cost you? • $ 6.75 • $ 9.10 • $11.77 • $14.32

49. Answer: $11.77 Charging the combo meal on your credit card will cost more than twice as much as paying cash.

50. Credit Cards:Use Them to Your Advantage! • You can pre-pay • You can pay during the grace period • You can pay the balance monthly • You can earn benefits (air miles, etc.)