Guide to Personal Finances

Guide to Personal Finances
The bare basics for beginners /
Coos Health & Wellness
2015

Table of Contents

Your Credit Score………………………………………………………………………………….2

Credit Cards………………………………………………………………………………………….5

Savings and Emergency Funds…………………………………………….……………….6

Managing your Debt…………………………………………………………………………….7

Credit Union vs. Bank……………………………………………………………………………8

Predatory Lending………………………………………………………………………………..9

Payday Loans……………………………………………………………………………...9

Rent-to-Own……………………………………………………………………………..11

Basic Personal Finance Terms…………………………………………………………….12

Financial Resources…………………………………………………………………………….15

Your Credit Score

What is a credit score?

Your credit score can mean the difference between being approved or denied for a loan or rentals housing. It can also mean the difference between being approved for a loan with either low or high interest rate. A high interest rate would mean that scheduled payments for the loan would be much higher than somebody making the same payments with a low interest rate.

A credit score is a 3 digit number that is linked to your social security number and is designed to assess whether you tend to be good with your bill payments or tend to leave you bills unpaid or late. Scores range from 300-850 and the way the scores are assessed can be broken down into these five categories:

What is good credit and bad credit?

The below graphic shows what ranges of credit scores are poor, fair, good, or great. This is based off of your FICO credit score. You can check your credit score annually for free off of various website such as

How to improve your credit:

Consistently pay bills on time. If your bank or credit union is online, set up automatic payments for the minimum amount on your account. If that is not an option, set up a reminder on your phone or something you look at regularly (calendar, planner, etc.) so that you don’t miss the deadline.
Check your credit score annually at a website like make sure that there aren’t any mistakes such as a paid-off debt appearing unpaid. If there are mistakes, contact the creditor to ask them to update your account. Every credit bureau has an application on their website to submit disputes.
Pay monthly balances on your credit cards in full.
Keep your balances low: just because your credit card allows you to spend as much as $5,000, do not spend that much. Creditors like to see a significant difference between what you’ve spent and what your credit card’s maximum balance is. Limit yourself to spending %30 of your available balance – so if your credit limit is $5000, than you would limit your spending to$1500.
Resolve outstanding debts collectors – nowadays, once you’ve paid off or settled a debt with a collection agency, it will not be calculated negatively to your credit score. Before, this would have been a negative ding on your record. Any unpaid bills will still be noted on your credit report for lenders to see.

What hurts your credit?

Evictions: If you are evicted, collection agencies will typically come after you for any back rent. Collection agencies will report to credit bureaus, and this will have a negative impact on your credit for 7 years.
Bankruptcy:Avoid filing for bankruptcy at all costs. Make sure you’ve evaluated any other emergency alternative (take up another job, work over time, take out a small loan, borrow from family members or close friends). Know that it is a serious state to be in, and should not be taken lightly (it is not an alternative way out of your debt). Bankruptcy will negatively impact your report for 10 years.
Criminal Convictions: Any criminal convictions will be on your credit report for the rest of your life.

Don’t have credit?

The best way to establish credit without having a credit history would be to open a credit card up with a bank or credit union.

First, however, you must establish a checking and savings account if you haven’t already done so. This will not reflect your credit score, but lenders would like to see that you have a few years of experience with managing your finances. If needed, ask a family member or close friend that has already established good credit to be a co-signer on your application. Understand that this would mean that both parties would be legally responsible to provide timely payments, and both of your credit scores would be affected negatively if you make late payments. Besides being legally responsible, it does not mean that your cosigner shouldhave to make any payments on your behalf.Understand that it is not unreasonable for a family member or friend to decline your request to be your cosigner, especially if you have not been good with handling money in the past.
Second, apply for a credit card. Look for lowest interest rates possible.
Pay bills on time, stay within 30% of maximum credit limit, and stick with one card to establish history.
Apply for a small loan. This is different than credit cards since you make monthly payments with interest, called“set loan installments”. Some examples of installment credit would be to apply for a student loan, a car loan, or mortgage. You can also apply for small loans from banks for just about anything – such as to buy a used car, an appliance, or personal loans. The lender has the right to say no, so establish a case as to why they should give it to youbefore applying for this loan.
Be employed and stay employed. Demonstrate stability to your lenders by maintaining jobs and achieving pay-raises.

Credit Cards

How do I manage a credit card?

Look for a credit card with low interest rates – refer to the section in this training entitled “Credit Union vs. Banks” to learn about obtaining a credit card with your local credit union.
If you are able to sign on to your account online, assign an automatic transfer to your credit card with at least the minimum payment, so that you never get late fees.
Pay off all debt or as much as possible every month on your credit card. Do not get into the habit of only making only the minimum payments.
Do not buy items that you cannot afford. Credit cards are great to have for establishing a good credit, but if you get into the habit of buying items that you can not immediately pay off, then you can end up falling into credit card debt.
Using credit cards to their limit can hurt your credit score. Only use 30% of the total balance on a credit card. This means that if you have a $1000 credit limit, only use $300 at a time, then pay it off.

Pre-approved Credit Cards

Exciting day, you got a pre-approved credit card in your mail! Wrong, it IS too good to be true, and there IS a catch.

The Facts

You still might get rejected.
The interest rate is usually sky-high, as much as %200 or %300! This means that for every dollar you borrow, you will have to pay two-three dollars back to the creditor.
You could be targeted due to having a poor credit score—the bank wins by earning more money in interest from you not paying their bills on time. You lose by not being able to pay off their extremely high interest rate and fees. Thus, you end up with more debt.

These are often debit cards in disguise, and aren’t a good way to build credit history

Savings and Emergency Funds

Putting money into a savings account helps your money grow, rather than sitting in your checking account.If you don’t put your this money in a savings account, inflation* will diminish the value of your savings.

A good rule to go by:

A good rule to go by is to save at least 10% of your income per pay period, if possible. Another good tip to establish an emergency fund is: if you’re in debt, pay all minimum fees towards debt and put everything else into a savings account until you reach $1000. After you have reached $1000, go back to putting all of your extra money towards debt. $1000 is a good mark to hit for an emergency fund since it can cover most of life’s curveballs that tend to pop up such as medical bills, veterinary bills, auto repair, etc.

Once you are out of debt, you should concentrate on building an emergency fund that would cover 3 months’ worth of your expenses. This will ensure that in the event of an emergency in which your monthly income is discontinued (i.e. you were laid off, fired, or must leave your job for personal reasons), you can have sufficient time to find an alternative source of income.

*See definition in Financial Terms section

Managing your Debt

How do I manage my debt?

Get to know what you owe: obtain a free annual credit score report to see what outstanding debts you may still have.
Make a list of amounts due: include monthly and minimum payments, interest rates, and any other fees.
Prioritize your debts: get the most burdensome debts off your plate. Concentrate on any high-interest-rate debt and credit card debt. Lower-rate debts like mortgages or student loans can be a lower priority, where you should just meet the minimum payments until the others are out of the way.

Tips for handling debt collectors:

Never engage in casual conversation with debt collectors
Never give debt collectors names of bank, bank number, or social security number
Do not answer any questions you don’t want to answer
Ask debt collector for a written account of exactly how much you owe in debt and why: this includes fees, interest, and collection costs
If you don’t believe the amount of debt is correct, dispute it in writing
If you don’t have money to pay off the debt, say so and ask for the debt collector to stop calling you. The debt doesn’t go away of course, but you will stop receiving phone calls.
If you can’t afford the debt, but could pay it off in increments, ask the debt collector to work out a payment plan with you. Be sure to get any agreement in writing.
If a debt collector harasses you in any way, take note of it. Include the date and time of the incident, as well as the name of the collector and agency. Harassment includes verbal abuse, profane language, threats, or calling you repeatedly day after day. With this information, you could possibly have grounds for a lawsuit, if things get out of hand.

Credit Unions vs. Banks

Credit Unions are very similar to traditional banks in the sense that they have checking and savings accounts, loan products, credit cards, and certificates for deposit (CD). The several key pros of credit unions are:

Credit unions are not-for-profit institutions. Therefore, they often can offer higher interest rates on savings accounts, and lower interest rates for credit cards and loans. They tend to give better service in general due to not focusing on making a profit.
They are member-focused institutions and are cooperative institutions. This means that they are owned and operated by its members rather than its stockholders. Your initial membership deposit will make you a part owner of the credit union, giving you a say on operations within the institution.
Lower fees associated with checks, withdrawals, and electronic transactions (often free of charge). Often they offer accounts with no minimum balance and monthly service charge. They do charge overdraft fees, however they are typically about $10 lower than the average banking fee.

Cons of Credit Unions

There are fewer options of types of checking and savings accounts. For example, Bank of America offers 5 kinds of checking and savings accounts as well as 29 different credit cards, while sometimes a credit union may only have as little as 2 types of checking and savings accounts and 2 types of credit cards. A larger bank can give you a choice that may suit your financial situation.
Credit Unions have fewer locations and are often have shorter business hours and fewer ATM locations. This poses a problem especially for those that travel a lot.
Depending on the credit union, they can often have poor online banking technology.

Predatory Lending

Payday Loans

You may have seen them in movies inflicting pain on a victim, demanding for an incredible amount of money to pay them back, or else... Well, unfortunately, there are legal practices similar to this that will inflict financial and emotional pain if you fall into their trap. We know these kinds of services as payday loans.

By definition, predatory lending benefits the lender, not the borrower. A form of predatory lending is “subprime lending” which specifically targets vulnerable populations that may have difficulty paying loans back, reflected by their poor credit score status. They also tend to disproportionately target minorities and the elderly to participate in their risky and unfair loans. Payday loan centers tend to concentrate in minority and low-income neighborhoods, for predatory purposes. Coincidence? Think again.

How do Payday Loans work?

Payday loans are everywhere, and they are completely legal in the state of Oregon. How payday loans work: you need to borrow $200 to pay your bills this month. You give lenders a check for $200 plus + $72 interest + $10 fee, totaling $292, post-dated for 4 weeks from then. Four weeks go by… you don’t have enough money to pay off the loan. You ask for another four weeks to pay it off, adding another 36% interest to your loan you haven’t paid off yet. Another four weeks go by, and you find that you have to take out a whole new loan to pay for the existing loan. And the cycle continues...

How to get out of the trap once you’re in

1.Don’t panic. These things happen to the best of us. You can recover from this and prepare better for next time.

2.Cancel Continuous Payment Authority (CPA); CPA allows lenders to keep taking money out of your account

3.Buy back your check or make sure enough money’s in your account so your check doesn’t bounce (that would make things much worse)

4.Figure out how much you owe, and how much you will owe over time. Do this to motivate and be honest to yourself.

5.Pay as much and as soon as you can, even if you’ve set up a payment plan.

6.Loan down: make loans smaller each time

7.Make up a budget: write down monthly income and expenses, and see where you could cut back

Facts on payday loans in Oregon

Lenders can charge up to 36% interest rate or 153.77% APR on any loan
You pay $10-$30 one-time fee on top of interest
2 rollovers permitted in state of Oregon (must pay in full after two pay-periods)
Incredibly short loan terms – payday loans last only until your next paycheck, allowing only 4 weeks to repay your loan (in other states, it can be as little as 2 weeks)
The cycle continues with more fees: most borrowers of payday loans cannot pay back the bill in such a small amount of time. They must take out another loan to pay off their current loan.
People will take out payday loans for basic needs: payday lenders take advantage of people that just need a little help with groceries, utility bills, rent, medical costs, and more.
In 2005, the payday lender industry handled $40 billion worth of loans, and pocketed $6 billion

How to avoid using Payday loans in the first place:

Build an emergency fund: follow the instructions in the section entitled “Savings and Emergency Funds”
Borrow from a credit union or other small loan lenders. Be sure to understand the fees and terms before signing anything.
Borrow from a family member or friend, or ask for an advance on your paycheck
Use your credit card (this can often be cheaper in interest)
Request overtime or pick up a part-time job
Put off expenses until you have the money
Ask utility providers or other creditors if they offer payment plans
Oregon Coast Community Action agency (ORCCA) of Coos County provides resources to help with rent, utilities, food, etc., see info in section entitled “Financial Resources in Coos County”

Rent-to-Own

So you want to get a nice TV but you don’t have all of the money up front to buy it. You hear about a place that you can make small payments over time while immediately getting the enjoyment of that TV you’ve been eyeing. While this may give you a boost of immediate satisfaction, what you may not realize is the overall money you will end up paying in the end. Is that TV really worth the $1000 you will spend over time, by renting to own? Or is it possible that rent-to-own centers are in fact, predatory lenders?

Kristy Welsh of the Credit Info Center writes: In October 2009,the U.S. Defense Department issued a report on predatory lending practices, and included rent to own as one of these programs.