Attention College Students: Student Loans, Debit and Prepaid Cards

College students often make financial decisions that can have consequences for years.  Getting a student loan or credit cards can influence long-term financial success.  Here are the ways to strengthen your decision-making skills:

  1. Do your research before applying for a student loan. If you have to borrow to pay for some or all of a college education, review the different types of student loans.  Choose one that’s low-cost and has a flexible repayment terms, which will generally be a federal student loan.
  2. Understand the pros, cons and costs of debit and prepaid cards. Debit cards enable you to withdraw money from your checking accounts for purchases or cash.  Prepaid cards are used to access money that has been loaded (added) onto the card, which is not connected to a bank account.
  3. Use credit cards responsibly: While credit cards are a convenient way to establish a credit history, they can make it easier to spend money. Purchases that cannot be paid in full by the due date will incur interest

For more information, click here.

Teaching Suggestions

  • Ask students if they have an outstanding student loan. Was the process of financing an education daunting and time consuming?
  • Ask students to visit the College Affordability and Transparency Center website (collegecost.ed.gov) for choosing the financial aid package that best suits their needs.

Discussion Questions

  1. Why is it important that you find the most affordable education that fits your budget, future career, and long-term financial goals?
  2. What might be the benefits of understanding the pros, cons, and costs of debit and prepaid cards?
  3. Are school-affiliated cards the best deal for all students? Why or why not?

Review a Copy of Your Free Credit Report

Credit reports, produced by credit bureaus, detail your financial history, and are used to develop credit scores.  Under federal law, you can get at least one free report from each of the nationwide credit bureaus every 12 months.  If you find an error, contact the credit bureau directly and correct the record.

If you cannot qualify for a regular credit card, consider a no-fee or low-fee secured credit card.  This is a credit card for which you would keep money (as collateral) in a deposit account at the financial institution issuing the card.  For example, if you want a card with $1,000 limit, you might deposit that amount into a savings account at the bank offering you the card.  The lender would report how you manage the card to one or more of the credit bureaus, and often it will provide you the opportunity to obtain an unsecured credit card after a certain period of on-time payments.  Secured cards may have fees attached to them and may have a higher interest rate, so be sure to do your homework before signing up.

To order your free annual report from the three major credit bureaus—Equifax, Experian, and TransUnion visit www.AnnualCreditReport.com or call toll free 1-877-322-8228.

You have the right to see and correct reports from “specialty” credit bureaus that, for example, track a person’s history of handling a checking account.

For more information, go to:

Building a better credit report

Specialty consumer reports

Teaching Suggestions

  • Ask students to visit several websites that may provide current information about credit files.
  • Bring to class examples of credit related problems of individuals or families. Suggest ways in which these problems may be solved.
  • Ask students to talk to a person who has discovered an error on his or her credit report. What was their experience to get it corrected?

Discussion Questions

  1. What steps can you take to improve your credit score?
  2. Which federal laws protect your rights if your credit application is denied?

 

Tips on Choosing and Using Bank “Rewards”

Bank reward programs tied to credit or debit cards or other products can provide you with appealing offers for things such as points to be used for travel and shopping or cash added to your account.  But finding great deals is only half of the equation.  Before jumping into any rewards program, consider these tips for maximizing the potential benefits and minimizing mistakes:

  • Comparison shop different rewards programs, including their fees and other costs, before deciding to apply for one.
  • Choose a rewards program that fits your lifestyle. The best way to maximize benefits and avoid spending problems is to choose a program that rewards you for purchases or deposits you would make even without the gifts.
  • Remember what it takes to earn rewards. Many credit cards provide rewards when you use them to make purchases, but it’s important to know exactly how much you can earn.

For more information, click here.

Teaching Suggestions

  • Why is it important for consumers to understand that to make the most of any rewards program, they need to make sure that they do not overlook other, more important account features in addition to the rewards?
  • Ask students to comment on the statement: “While rewards can be beneficial, don’t spend just to earn rewards.”

Discussion Questions

  1. Where should you look for credit cards and other bank products that provide rewards tailored to your particular needs?
  2. What are some of the perks that credit cards allow for their customers?
  3. Does overall spending and debt accumulation increase among consumers who use a rewards credit card?

Internet Fraud

How many people are scammed into sending money or giving personal information each year?
Answer: Millions!!

Types of Internet Fraud

  • Internet auction fraud—involves the misrepresentation of a product advertised for sale on an Internet auction site, or non-delivery of merchandise.
  • Credit card fraud—the unauthorized use of credit/debit card, or card number, scammers fraudulently obtain money or property.
  • Investment fraud—an offer using false claims to solicit investments or loans, or providing purchase, use, or trade of forged or counterfeit securities.
  • Nigerian letter or “419” fraud—named for the violation of Section 419 of the Nigerian Criminal Code, it combines the threat of impersonation fraud with a variation of an advance fee scheme in which a letter, e-mail, or fax is received by a victim.

Tips for Avoiding Internet Fraud

  • Know your seller – If you don’t know who you are buying from online, do some research.
  • Protect your personal information – Don’t provide it in response to an e-mail, a pop-up, or website you’ve linked to from an e-mail or web page.

For more information, click here.

Teaching Suggestions

  • Bring to class Internet-related problems and examples of individuals or families. Suggest ways in which these problems might be solved.
  • Compile a list of places and organizations where a person can call to report Internet fraud.

Discussion Questions

  1. While the Internet makes everyday tasks faster and more convenient, like stopping, banking, and communicating, why it’s important to be safe, secure, and responsible online.
  2. What are some basic precautions we can take to protect our computer and personal data from theft, misuse, and destruction?

Revising Dave Ramsey’s Baby Steps

Dave Ramsey has taught and encouraged millions to get out of debt and to achieve an improved financial situation through his “seven baby steps,” which are: (1) establish a $1,000 emergency fund; (2) pay off debt; (3) save three to six months of expenses; (4) invest 15 percent of income in pre-tax retirement funds; (5) plan for the funding of the college education of children; (6) pay off mortgage as soon as possible; (7) build wealth and give.

An alternative perspective to this approach might be:

  1. Create a larger initial emergency fund.
  2. Instead of paying off the smallest debts first, pay off the ones with the highest interest.
  3. A minimum of six months for expenses is needed, with twelve months more realistic.
  4. Take advantage of any 401k matching offered by employers.
  5. College may not be the right educational choice for everyone. Also, those who go to college should be responsible for a portion of education costs.
  6. Home ownership may not be appropriate for everyone. When buying a home, paying off a mortgage may be a higher priority than saving for college to reduce the amount of interest paid.
  7. Making money, saving money, and donating to charity should be the main focus.

For additional information on personal financial planning actions, click here.

Teaching Suggestions

  • Have students survey others regarding their use of these personal financial planning suggestions.
  • Have students obtain additional financial planning suggestions using online research.

Discussion Questions 

  1. What do you believe are the most important actions that should be taken regarding wise personal financial planning?
  2. How would you communicate these financial planning actions to others?

Prescreened Credit and Insurance Offers

Many companies that solicit new credit card accounts and insurance policies use prescreening to identify potential customers for the products they offer.  Prescreened offers–sometimes called “preapproved” offers–are based on information in your credit report that indicates you meet criteria set by the company.  Usually, you receive prescreened solicitations via mail, but you may also get them in a phone call or in an email.

For additional information, go to

http://www.consumer.ftc.gov/articles/0148-prescreened-credit-and-insurance-offers

Teaching Suggestions

You may want to use the information in this article to discuss

  • Why some people prefer not to receive prescreened offers in the mail, especially if they are not in the market for a new credit card or insurance policy?
  • What might be some advantages of receiving prescreened offers?
  • Ask how many students have received prescreened offers and what did they do with them.

Discussion Questions

  1. Can prescreening hurt your credit report or credit score?
  2. How can you reduce the number of unsolicited credit and insurance offers you receive?

The Credit Card Mistake That’s Costing Millenials

“A new survey from BMO Harris Bank shows consumers are confused on how credit card balances affect credit scores. . .”

While using a credit card is one of the easiest ways to build credit, there are plenty of misconceptions about how best to do that.  According to this survey

  • 39 percent of Millennials—people between ages 18 to 34—believe carrying a balance increases their credit scores. In fact, carrying a balance does not improve credit scores and can actually hurt scores.
  • 23 percent of those surveyed indicated that a person’s educational level affects his or her credit score. In fact, a credit score is based only on the information in your credit report, and educational level is not included in your credit report.
  • 27 percent of those surveyed thought checking their credit scores would lower their credit score. In fact, the opposite is true:  If you regularly check your credit scores, it’s likely you’ll make financial decisions that will improve your credit score.

For more information go to http://finance.yahoo.com/news/credit-card-mistake-thats-costing-103040745.html

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Discuss why a credit score is important.
  • Stress the importance of “managing” credit card debt.

Discussion Questions

  1. What affect will your credit score have on the finance charges you pay for credit purchases?
  2. How can your credit score affect your ability to purchase a home or an automobile?
  3. Assume you have a low credit score and have been turned down for a home mortgage. What steps can you take to increase your credit score?

Consumer Finance: Medical Credit Cards

Medical credit cards are offered by financial institutions to pay for services not covered by health insurance, such as, dental and cosmetic procedures, or for veterinary care.  Medical credit cards received increased attention after the New York attorney General and the Bureau of Consumer Financial Protection brought enforcement actions against Care Credit LLC, an affiliate of GE Capital Retail Bank.  It is alleged that Care Credit failed to provide disclosures and gave inaccurate information to 4.4 million cardholders.

Medical credit cards from large banks offer a revolving line of credit with an established credit limit with some form of promotional financing (special terms and conditions, which are valid for a specified period of time). The most commonly used financing option is deferred interest, with no interest charged for promotional period, but interest charged retroactively if the balance is not paid in full before the end of the promotional period, usually 6 to 24 months.  Among large banks the Government Accountability Office reviewed in May 2014, the most commonly used cards had an annual percentage rate of 26.99 percent or more.  These banks also offered revolving line of credit with fixed monthly payments, with an APR of zero to 17.99 percent.

For more information , go to

http://www.gao.gov/assets/670/664256.pdf

Teaching Suggestions

  • Ask students what are other alternatives in financing medical expenses that are not covered by health insurance.
  • Have students survey friends or relatives to determine the use of medical cards.

Discussion Questions

  1. Why would someone get medical credit cards when mainstream credit cards, such as Visa, and MasterCard, offer relatively lower-rate credit cards?
  2. What might be advantages or disadvantages of using medical credit cards?

Is Your Credit Card Denied By Mistake?

When your credit card issuer suspects fraudulent activity on your credit card, it triggers a red flag to deny the charge.  Generally, it is a great protection.  But if you are making the purchase and not a thief, it can be frustrating.  Some purchase patterns that could cause your purchase to be denied include:

  • A purchase for a small dollar amount, followed by a large purchase. Credit card thieves sometimes make a small dollar “test purchase” followed by big ticket items, so this raises a red flag.
  • Multiple purchases back-to-back in a short span of time.
  • Making purchases in a new city, in a different part of town, or in stores where you do not normally shop.

Though inconvenient, these protections are to keep you from being a victim of fraud.  Take these steps to prevent or deal with a credit card purchase being denied by mistake:

  • Inform your credit card company if you will be using your card out of town (especially internationally).
  • Update your billing address if you move, so that the company recognizes the new pattern of purchases as a new normal.
  • Make sure the company has your cell phone number so that it can contact you faster to verify or authorize a purchase.
  • Contact your credit company immediately if your purchase is denied.

For more information go to http://www.usa.gov/topics/consumer/consumer-action-handbook.pdf

Teaching Suggestions

  • Ask students if their credit card was ever denied in error.
  • If the transaction was denied, how did they resolve the problem.

Discussion Questions

  1. What are a few reasons that your credit card purchase might be denied?
  2. What can you do to avoid such an embarrassment at the check-out counter?

Beware of Credit Card Surcharges

Did you know that retailers are permitted to charge or surcharge up to 3 percent on your credit card purchases?   However, if a retailer imposes a surcharge, it must be clearly disclosed in the store and on your receipt.

These checkout fees may also give you a discount if you pay with cash. Retailers in CA, CO, CT, FL, KS, MA, ME, NY, OK, and TX are not permitted to charge credit card surcharges.

Retailers are also allowed to set a $10 minimum purchase amount for credit card purchases. However, they can’t charge fees or set minimum purchase amounts on debit card purchases.

For more information on credit card surcharges, go to http://www.knowyourcard.org.

Teaching Suggestions

  • Ask students if they have personally experienced credit card surcharges on their purchases.
  • Have students make a short presentation with a summary of what actions might be taken to avoid credit card surcharges.

 

Discussion Questions

1. Should retailers charge extra 3 percent surcharge when they display a sign “Your VISA and MasterCard are accepted here”?

2. What can you do to avoid credit card surcharges?