Frequently Asked Questions
- What is the Institute for Financial Literacy at Western Connecticut?
- Why is Financial Literacy Important?
- What Can Be Done to Get Personal Finances in Order?
- How do I determine if I have too much debt?
- What can be done if I’m unable to make a Loan Payment?
- What is a credit score?
- How is a credit score determined?
- Are there any guidelines for using credit cards?
- What is a teaser rate?
- What is the difference between a debit card and a credit card?
- What is Identity Theft?
- What is the difference between a student loan and a grant?
- What is the difference between an Unsubsidized Student Loan and a Subsidized Student Loan?
- I’m graduating from college, what should I do financially?
- What is Bankruptcy?
The Institute for Financial Literacy at Western Connecticut is a free, voluntary program offered by WCSU tp provide financial counseling and education service to students who want assistance in managing their money.
At a time of rising indebtedness among college students and heightened economic uncertainty the ability for students to make decisions about their personal and shared resources is critically important. Understanding fundamental budgeting and financial planning skills will help you make informed financial choices now and throughout your lifetime.
Knowing exactly where you are financially is a good starting point. A key element in moving forward is to establish a personal budget and spending plan. A spending plan estimates income and expenses over a period of time. More information can be found under BUDGETING in our literacy wheel.
If you can not meet your basic living expenses and debt payments you probably are overleveraged.
Ignoring the problem won’t make it go away and, in fact, may make the problem worse. Think about getting assistance. Start by calling the creditor to determine if an alternative solution can be arranged. You can also contact the Institute for guidance.
A credit score is a numerical expression based on a statistical analysis of a person’s credit files that represents the creditworthiness of that person.
The most widely used credit score formula was created by Fair Isaac Corporation. The formula uses 22 pieces of data collected from the three major credit bureaus to calculate a credit score. 300 is the lowest and 850 is the highest. The final number is a composite that comes from individual ratings in five categories. Payment history (35% of the score), length of credit history (15%), new credit (10%) types of credit used (10%) and total debt (30%). Income is not a factor.
In a perfect world a credit card will be used as a temporary substitute for cash. Therefore, when the monthly bill arrives it should be paid in full. Over the past several years, credit card use has expanded beyond a temporary substitute for cash so that now consumers purchase big ticket items that require a repayment over time. As a result credit card debt held by consumers has exploded over that past several years. Credit card debt should not exceed 30% of the credit line on any particular card and total payments on all debt should not exceed 8% of gross monthly income. Making monthly payments that exceed the minimum required will accelerate the reduction of the loan balance.
A teaser rate is a short term, below market interest rate used by credit card issuers to attract new customers. You must find out what the interest rate will be once the period for the teaser rate expires.
Debit cards are tied to your bank account so that when you use the card the amount you spend is automatically deducted from your account. A credit card, on the other hand, allows you to use someone else’s money ( usually the card issuer) to make a purchase with expectation that you will pay the money back at a later date. Once you receive your monthly statement, if the full amount is not paid, interest will be charged on the remaining balance.
Identity theft occurs when someone wrongfully acquires and uses a consumers personal identification, credit, or account information to their advantage. Some law-enforcement agencies call identity theft “the fastest growing crime across the country right now”. Most victims don’t even know how the perpetrators got their information. Identity theft fraud may account for as much as 25% of all credit card losses each year. Some ways to avoid identity theft include:
- Buy a shredder and shred all important type documents
- Do not throw away anything that someone could use to become you.
- Be careful at ATM’s and using phone cards.
- Do not put checks in the mail from your home mailbox
- Cancel all credit cards that you do not use or have not used for six months.
- Put passwords on all your accounts.
- Memorize your social security number and passwords.
More information about identity theft can be found under CREDIT ISSUES on our literacy wheel.
As is the case with most loans, a student loan must be repaid usually starting six months after graduation. A grant, on the other hand, does not have to be paid back as long as educational requirements are met.
An unsubsidized student loan is a federal loan that begins accruing interest the moment it is accepted. The student may choose to pay the accruing interest while in school or add the interest to the principal balance of the loan. A subsidized student loan is a federal loan that does not begin to accrue interest to the student until after a grace period ends, or when the student withdraws from school.
When most students graduate from college they will have a job that will provide more income than any other previous time in their life. In order to properly maintain a stable financial profile creating a spending plan is an important first step. Secondly, the urge to satisfy the want desire versus the need desire when spending money must be kept under control. Thirdly, pay down any debt that may have been acquired during college and finally, establish some type of savings plan and fund that account before any discretionary purchases are made.
Bankruptcy is a federal court process designed to help consumers and businesses eliminate their debts or repay them under the protection of the bankruptcy court. In general, for consumers bankruptcies can be categorized as either liquidations (chapter 7) or reorganizations (chapter 13).