Loans Credit cards Debt Investments Big purchases

Draw

Draw what you would use a loan for i.e. Auto, Home, School, Personal, Business.

What is a Loan?

• Money borrowed with the expectation to pay back the principal amount plus interest

• Principal- the original amount borrowed

• Interest- a percentage paid to borrow money

Types of Loans

• Student Loans

  • Pay for college tuition

• Mortgages

  • Purchase a home

• Small Business Loans

  • Start a small business

• Auto Loans

  • Buy a new car

• Payday Loans

  • Money to get you through to payday

Interest

• Price you pay to borrow money

• Must be paid in addition to the principal amount

• Rates may vary based on credit score

Variable vs. Fixed rates

• Variable Rate

  • Can change over the course of the loan

  • Adjusts based on a set index

  • May cause your monthly payment to change each month

• Fixed Rate

  • Remains the same throughout the course of the loan

  • Monthly payment remains the same

Secured vs. Unsecured Loans

• Secured loan

  • Collateral

    • An item of value the lender can take if a loan is not paid back

  • Lower interest rates

• Unsecured loan

  • No collateral

  • Higher interest rates

WHAT IS YOUR DEBT?

Debt: an amount that is owed to
another individual or bank

Calculate your debt: determine to
whom you own money and the
minimum payment due each month,
along with the interest rate

SPENDING PLAN UPDATE

–

DEBT

▪ Mortgage or Rent

▪ Car Payments

▪ Credit Cards

o Bank, department stores, Prepaid Cards, etc.

▪ Loans

o Personal, student, consolidated loans, etc.

▪ Advance payments

▪ Organizations, family, friends

DEBT

and CREDIT

LEARNING OBJECTIVES:

▪

Determine debt-to-income
ratio

▪

Analyze the impact of credit
score on transition

▪

Identify ways to decrease debt
prior to transition

DEBT

-

TO

-

INCOME RATIO

Total MINIMUM monthly payments

$2,050

÷

Gross monthly income (pre-taxes)

$5,308

=

The debt-to-income ratio calculation:

2050 ÷ 5308 = 0.38

0.38 x 100 = 38

DTI: 38%

DEBT

-

TO

-

INCOME (DTI) RATIO

Less than 33%: Debt at
this level is considered
manageable by creditors

34% - 49%: Still manageable,

but is based on personal
financial circumstances;

consider ways to lower DTI

Above 50%: Over half of
income is going to debt

which may limit the

amount of credit

available

Most

mortgages

have a DTI maximum

of

41-43%

CREDIT SCORES

▪ Three-digit number generated by a mathematical

algorithm based on information in your credit
report

▪ FICO – Most common
▪ FICO Range : 300 - 850

What is a Credit

Score?

FICO SCORE COMPONENTS

What to check

ANALYZING YOUR CREDIT REPORT/SCORE

Review Personal Information

All open accounts are yours

Inquires from credit you applied
for

Account history listed for
your accounts

Negative information

All debts discharged in
bankruptcy are listed that way

WAYS TO
IMPROVE
YOUR
CREDIT
SCORE

Limit Inquiries

Stay within

Credit Limit

Pay Down

Installment Loans

Prompt

Payments

Accounts in

Good Standing

Match credit

to purchase

Ensure Credit

Report is accurate

Set up Auto

Bill Pay

Don’t exceed 10%

Credit card use

Use Auto Pay

options for loans

Don’t add new

accounts to lower

balances

Apply for new

credit wisely

$

SAVINGS AND INVESTMENTS

TYPES OF SAVINGS

Savings

Emergency Savings

Goal Savings

INVESTMENTS

Mutual Funds, Stocks,

IRA, 401k

RETIREMENT PLANS

DEFINED

-

CONTRIBUTION PLAN:

The contribution is defined yet the ultimate benefit to
be paid is not (e.g., 401(k) and 403(b) plans, IRA, Roth IRA

▪Contributions are from the employee and are portable

▪A portion may/may not be matched by employer

▪Each participant has an individual account

▪Benefit at retirement depends on amounts contributed +
investment performance of account

▪Investment risk may rest solely with the employee due
to opportunity to choose from several investment options

​Important Links

https://consumer.gov/credit-loans-debt/your-credit-history

https://www.nerdwallet.com/?trk=nw_gn_5.0

https://mint.intuit.com/investments/

Open Ended

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