FINAL ONLINE EXAM Salary & understanding employee Benefits 50 MULTIPLE CHOICE
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manage_debts.pptxManage Debts
It is more important than savings/investments!
US household consumer debts statistics
Average credit card debt:
$7,123 (all households)
$15,270 (indebted households)
Average mortgage debt: $149,925
Average student loan debt: $32,258
Total consumer debt: $11.36 trillion
Total credit card debt: $856.9 billion
Total mortgage debt: $7.93 trillion
Total student loan: $1,049 billion
Interest payment burden
Average credit card APR: 15%
30-year fixed mortgage rate: 4.25%
Student loan rate: 4% -- 8.5%
Auto loan rate: 4.5%
These rates are historically LOW!
Compare with investment returns:
Average 1-year CD: 0.8%
10-year Treasury: 2.7%
10-year S&P 500 return: 7%
Don’t forget inflation and tax!
Types of consumer debt
Secured debt
Protected by an asset or collateral
Lien on the asset
Lenders hold the deed/title until the loan has been paid in full
Lenders may sell the asset to repay the loan
Usually lower interest rate, longer term and larger amount
Example: mortgage, home equity loan and auto loan
Unsecured debt
No collateral
More risky
5 C – character, capacity, capital, collateral, conditions
Example: credit card, student loan
FICO scores
A numerical snapshot of the information in your credit report
Used by lenders to assess your creditworthiness
Scale ranges from 300 to 850
Lenders want to see a score of at least 620--the higher, the better!
Three credit reporting agencies --- Equifax, TransUnion, Experian
FICO breaks down
Improve your FICO scores
Maintain or improve payment habits
Repay collection accounts and other outstanding debts
Reduce total debt
Avoid taking on new credit
Keep revolving debt well under the credit limit
Correct credit report errors
Use different types of credit
Build credit history
Keep credit cards active
Credit Card
Build credit history from credit cards
Choose the right cards
Convenient user: annual fee
Revolving user: APR
Use credit cards responsibly
Pay the full amount each month
No cash advance
Pay on time to avoid late fees
Check statements for errors/scams
Report lost/stolen cards immediately
Protect your information to avoid identity theft
Common credit mistakes
Always use cash
Cancel the oldest credit card
Use only credit cards
Inactive credit cards
Use more than 50% of credit card limits
Pay minimum amount only
Frequent credit inquiries:
hard inquiry vs. soft inquiry
Never check credit reports for error
Student loan
Unsecured debt
Backed by earning potential
Treat the loan as a business adventure
Check earning potential to evaluate ability to repay
Investment for human capital
Tax return/salary can be garnished to repay the loan
Cannot be discharged
Student loan interests paid can be deducted (max. $2,500 limited by MAGI)
Average starting salary for new college graduates
| Category | 2013 Average Salary | 2012 Average Salary |
| Business | $55,635 | $51,541 |
| Communications | $43,835 | $42,286 |
| Computer Science | $58,547 | $60,038 |
| Education | $40,337 | $39,080 |
| Engineering | $62,062 | $60,639 |
| Humanities & Social Sciences | $37,791 | $36,824 |
| Math & Sciences | $42,731 | $42,355 |
| Overall | $45,327 | $44,259 |
http://www.payscale.com/college-salary-report-2014/majors-that-pay-you-back
Mortgage
Your house is used as the collateral
Homeowners receive better interest rates for other loans
Interests paid are deductable (max. $1 million)
Fixed mortgage vs. Adjustable-rate mortgage (ARM)
Longer term more interest payments
Higher rate more interest payments
Short sale vs. foreclosure
Short sale: sold by owner but needs lender approval
Foreclosure: sold by lender
Cause credit scores to drop by 200-300 points
Filling Bankruptcy
Chapter 7
Liquidation/straight bankruptcy
Cancel most debts
Liquidate property to repay creditors
Keep only exempt property
Pass means test
Chapter 13
Repayment plan
No asset liquidation
The only option if not eligible for Chapter 7
Avoid foreclosure
Keep property
Both can:
Wipe out all/some unsecured debts
Stop creditor harassment through “Automatic Stay”
t
13
Nondischargeable Debts
Most taxes
Child support
Alimony
Government or court fines/penalties
Student loans
Debt for personal injury caused by DUI
Debt to tax-advantaged retirement plans
HOA dues
Attorney fees for child custody/support
How does bankruptcy affect your credits?
A blow to credit scores
Can stay on credit reports for 10 years
Ineligibility for loans or credit cards for the first few years
Rejection when looking for jobs
Difficult to find a decent apartment
Other restrictions
