Indiana Department of Financial Institutions low-income consumer credit: tool or trap?



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Articles



Auditing Your Records: What You Don't Know Can Hurt You, Consumer Reports, pp. 60-61, (November 1996).
Can't Get Insurance? Maybe Its Because Of Your Credit Report, Consumer Reports, p. 8, (February 1997).
Do You Know Your Credit Score?, by Tracey Longo, Kiplinger's Personal Finance Magazine, pp. 84-86, (July 1996).
How To Keep Your Credit Report Clean, by Barbara Gilder Quint, Glamour, p. 72, (January 1996).
How You Can Make Sure Lenders Size You Up Right, by Ellen Stark, Money, pp. 49-51, (April 1997).
Single Mother and Welfare, by Ellen L. Bassuk, Angela Brown and John C. Buckner, Scientific American, pp. 60-66, (October 1996).
They've Got Your Number: Get your Credit History Right. Fairly Or Not, It Runs Your Life, In More Ways Than You Realize, by Jane Bryant Quinn, Newsweek, p. 44, (March 4, 1996).

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What You Should Know About Your Credit History, by Jane Bryant Quinn, Good Housekeeping, pp. 119-120, (March 1996).



Why Judgment Calls Help Consumers, by Lawrence B. Lindsey, Consumers' Research Magazine, pp. 16-18, (March 1996).

Book



The Ultimate Credit Handbook: How To Double Your Credit, Cut your Debt, and Have a Lifetime of Great Credit, by Gerri Detweiler. New York: Plume Book, (1997). $12.95.
Eric (Educational Resources Information Center)
ED376324, "Ends Don't Always meet," 353 Project Final Report, (1993). A project was conducted to teach family financial management to a class of adult basic education students. This report provides students information on why they need a budget, fixed and flexible expenses, and how to create a budget; handouts that provide fictitious life scenarios for creating and modifying budgets.
ED361549, Low Income Family Resource Management, instructional material, (1992). Materials intended for use by adult members of low income families are provided for various topics related to low income family resource management, such as, budgeting, credit, decision making and money management.
ED367469, Raising Happy Kids on a Reasonable Budget, by Patricia C. Gallagher, (1993). This guide shows parents how to cut expenses and save on the cost of raising a family.

Pamphlets



Federal Trade Commission

Building A Better Credit Record
Easy Credit? Not So Fast: The Truth About Advance-Fee Loan Scams
Equal Credit Opportunity
Fair Credit Reporting
Scoring For Credit
Solving Credit Problems
What to do if you're Denied Credit

Available, free from:


Public Reference, Room 130
Washington, DC 20580-0001
http://www.ftc.gov

Consumer Handbook to Credit Protection Laws
Available, free from:
Publications Services
Board of Governors of the Federal Reserve System
Washington, DC 20551

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Videos


Credit Basics: The ABC's Of managing Your Credit, designed for limited resource families, lessons address buying on credit, using credit wisely and solving problems. 1992. $20 for 10 page teaching guide (3 lessons) with 3 videos (4-6 minutes each) $5 extra for kit with both English or Spanish versions. Cooperative Extension-Suffolk County, 246 Griffing Ave., Riverhead, NY 11901-3086. Telephone: (516) 454-0900.
Understanding Credit (Tiemp De Accion: Compriendo Lo Que Es El Credito), Univision celebrity, Jose Ronstadt, talks with consumers on the street and credit experts about credit. Questions and answer explain credit options. 1993. 28 minutes. $25 or free to grassroots organizations. Spanish. Call for Action, 3400 Idaho Ave., NW, Suite 101, Washington, DC 20016. Telephone: (202) 537-0585.


World Wide Web



See our Web Site on Consumer Credit Information at http://www.in.gov/dfi/education/end.htm
Electronic Credit Repair Kit
http://mix6.com/credit
National Institute for Consumer Education
Money Management - Low Income Resource list at http://www.emich.edu/public/coe/nice/mmli.html

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YOUR INCOME AND EXPENSE STATEMENT

FACT SHEET
Your income and expense statement is a tool to help you live within your income. It is an important first step toward starting a savings program. It can help you determine how much, if anything, you can comfortably afford to save and spend each month.
If you have little or no income left at the end of the month, look at your flexible expenses such as food, entertainment, and other nonessentials. You may find that you can reduce some of these expenses and put more money into savings or paying off credit card debt.
An income and expense statement can also help you decide if you can afford new purchases. For example, a suit you would like to own is now on sale for $99. Should you buy it? Can you afford it? If you buy it will you postpone buying something else you need? A quick look at your completed income and expense worksheets can tell you how much you have spent on clothes this month and whether buying the suit is wise when you consider other expenses and priorities.
Keep Your Income and Expenses In Balance
People who do not analyze their income and expenses can be tempted to spend money on impulse rather than focus on their financial priorities. Living within one's income is a basic rule of sound money management, while impulse spending can lead to financial problems. If expenses exceed income, you have three choices. You can increase your income, reduce expenses, or go into debt. If, on the other hand, your income exceeds expenses, the extra money can be added to savings or used for other purposes.
To complete your Income And Expenses Worksheet, follow these steps:


  • Record all income.



  • Organize and list expenses as fixed or flexible.



  • Fixed expenses are specific amounts due each month, such as mortgage or car loan payments.



  • Flexible expenses are expenses that vary each month, such as food, utilities or credit card payments.



  • List periodic expenses, expenses that are due once or several times a year, such as taxes, insurance or vacation expenses.



Not everyone takes the time to record and analyze their income and expenses. Those who do are more likely to reach their financial goals and avoid the traps of overspending that can lead to serious debt problems. They enjoy the feeling of being in control of their finances.

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INCOME AND EXPENSES WORKSHEET

Monthly Income (after deductions)

Wages or Salary
Allowance
Child Support
Scholarships/grants
Other
TOTAL INCOME

$______________
$______________
$______________
$______________
$______________
$______________

Monthly Fixed Expenses

Rent or Mortgage
Cable TV
Savings, regular
Emergency fund
(2 to 3 month's income)
Retirement Savings
Installment Payments
Other

$______________
$______________
$______________
$______________

$______________


$______________
$______________

Monthly Flexible Expenses

Food
Telephone
Gas
Electricity
Water and Sewer
Clothing
Personal Care
Transportation
Gasoline
Credit Card Payments
Medical and Dental
Entertainment
Child Care
Contributions
Other

$______________
$______________
$______________
$______________
$______________
$______________
$______________
$______________
$______________
$______________
$______________
$______________
$______________
$______________
$______________

Periodic Expenses

Taxes
(not deducted from pay)
Insurance
(car, health, home, life)
School Tuition
Maintenance
Vacation
Memberships
Subscriptions
Gifts
Credit Card Payments
Other

$______________

$______________

$______________
$______________
$______________
$______________
$______________
$______________
$______________
$______________


TOTAL FIXED EXPENSES

$______________

TOTAL INCOME

$______________

Subtract TOTAL EXPENSES

$______________


BALANCE

$______________


HOW MUCH CREDIT CAN YOU AFFORD?

FACT SHEET


Deciding how much credit you can afford is a personal financial decision. People have different wants, needs, goals and incomes, so they have different opinions on how to spend their incomes. Credit can be a valuable tool that offers many advantages, but there is a cost for using credit and too much credit can cause serious financial difficulties.
Deciding how much credit you can afford should be based on objective information from your income and expense records. With this information you can develop a spending plan that includes a list of your needs, wants and goals to direct your spending and saving. Without a plan for spending and saving it is very easy to overspend, especially with a credit card.

Guidelines For Setting Credit Limits


Answering the following questions can help you decide if you should use credit and how much credit is right for you and your family:


  • Should you use credit? Most consumers use credit to purchase consumer goods such as cars and major appliances because they have the use of consumer goods while they pay for them. The following questions can help you decide if you want to use credit or cash:



  • How long will I have to save to pay cash?



  • How long can I wait to have the product?



  • Will the price be higher or lower in the future?



  • Will the convenience or satisfaction I gain form the product be worth the interest costs?



  • Will the monthly payment fit into my spending plan?



  • Will the product have value after I have finished paying for it?



  • Do you limit credit use to amounts that can be repaid from current and future income? A spending plan is a way to control spending and saving so that you can meet your financial goals. It will help you analyze your income in relationship to your expenses. Then you can determine how much money you have available for credit use.



What percentage of your current after-tax income is already committed to credit debt? List all credit commitments, such as automobile or consumer loans and credit cards. If you plan the use of credit, it can be a useful money management tool.

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  • Have you established a debt limit? It is important that you establish a debt limit based on your financial situation because many lenders are willing lend more credit than you can afford. Use the debt limit to control your credit use. Generally, financial planners suggest that from 10% to 20% of your disposable income is a realistic credit debt, excluding a mortgage.

How Much?


To determine how much credit you can afford, complete the following?


Monthly after-tax income

$____________________

10% of after-tax income (pay X .1)

$____________________

20% of after-tax income (pay X .2)

$____________________

Monthly credit payments owed

(not including mortgage)



$____________________




  • If your credit payments are less than or equal to 10% of your after-tax income you are controlling your credit use.



  • If your credit payments are between 10% to 20%, you need to carefully evaluate any additional credit.



  • If your credit payments are more than 20%, you should not take on additional credit.



These figures are general guidelines. Even though no two people spend their incomes the same way, most have some form of debt payments. In order to determine a realistic debt limit figure, consider the amount of current debt you have in comparison to your after-tax income.

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