Reduce Your Debt 5-17-11

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                                                                                     Reduce Your Debt
    CA Commission on the Status of Women
                                                           Understand Your Debt
                                                                                     Not all debts are equal. Knowing what kind of debts you have is an important
                                                                                     first step. For example, home and school loans may reduce your taxes,
                                                                                     increase your equity, and enable you to achieve greater wealth and earning

                                                                                     power. Other debt, such as credit card debt and car loans, typically charge
                                                                                     high interest rates and take money away from your future wealth.

                 "Safety and Soundness"                                              Credit enables you to make purchases without using cash. However, convenience
                                                                                     has a price – interest. And the longer it takes you to pay off the credit balance, the
                                                                                     more interest you pay. To reduce debt, stop borrowing more than you can afford
                                                                                     to pay off every month.
   CA Department of Financial Institutions
                                                             Signs of                                     • You make late payments, miss
                                                                                                                                    payments, or juggle payments
                                                                                     Financial Trouble                            • Your total credit card debt is more
                                                                                     In today’s economy, millions of
                                                                                                                                    than your total monthly income
                                                                                     Americans are unable to cover their
                                                                                     basic living expenses, let alone pay         • You don’t have any savings and
                                                                                     off debt. Financial difficulties may           are unable to save money
                                                                                     lead to greater use of credit cards,         • You are only able to pay the
                                                                                     cash advance loans, or other high              minimum on a credit card for two
                                                                                     cost options. Be careful – this may            consecutive months
                                                        E&O Fin Lit 002 (NEW 7/11)

                                                                                     lead to a cycle of debt from which it
        CA Department of Corporations                                                                                             • You or a family member can’t
                                                                                     will be very difficult to recover.
                  1-866-ASK-CORP                                                                                                    stop overspending. (For advice
                  (1-866-275-2677)                                                   If any of the following apply to you           and support, go to Spenders
                                                            or your family, you may need help:             Anonymous )
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Follow us on Twitter @CAFLM                                                                                                       "Safety and Soundness"

for additional financial literacy information
5 Steps to Get Out of Debt                                                                                                          Financial Difficulties
                                                                                                                                    If you or family members frequently
                                                                                                                                    spend more than you can afford,
1. Make a Budget:                            3. Pay Off Debt:                           Note: Other websites or vendors may
                                                                                                                                    worry about making ends meet, fear
List all your income sources, expenses,      Whenever possible, pay off the entire      offer a “free” credit score; however,
                                                                                                                                    opening monthly bills, or stress when
and debts and calculate the minimum          balance of your credit card(s) and other   such offers typically require some kind
                                                                                                                                    applying for a loan – you need help!
amount you must pay each month.              debts each month, or at least pay more     of purchase or monthly fee.                 Don’t let fear or embarrassment
Keep track of every single purchase for      than the minimum monthly payment.                                                      prevent you from seeking help – if
a month - coffee, parking, etc. This will
                                             Remember, interest rapidly increases
                                                                                        5. Improve Your                             you cannot pay your bills, contact
                                                                                                                                    creditors before payments are due.
help identify opportunities to reduce
your spending, making more available
                                             the total amount owed. Credit cards        Credit Score:                               Be persistent– a few phone calls
                                             typically charge high interest rates, so   • Pay bills on time. If you miss a          can make a big difference! Ask
to pay off debt. Make a budget, then                                                                                                your creditors to waive fees, reduce
                                             making only the minimum payment              payment, get current and stay
stick to it.                                                                                                                        the interest rate, or help you create
                                             means you will pay far more in interest      current.
                                                                                                                                    a payment schedule that will work
                                             than if you were to make a larger (or      • Manage your credit responsibly.           within your budget.
2. Prioritize                                full) payment. If possible, make one         In general, having credit cards
Your Debts:                                  additional payment per year on large         and installment loans (and paying         If You Have Credit Problems
Evaluate which debts to tackle first.        loans (like those for cars and houses)       timely payments) will raise your          For assistance with credit problems
You might begin by aggressively              – this can significantly reduce your         credit score.                             and creditors, go to National
                                             interest costs over time.                                                              Foundation for Credit Counseling
paying off the debt with the highest                                                    • Keep balances low on “revolving           (NFCC) or call
interest rate, while making smaller                                                       credit” accounts (those without a         Toll-Free 1-800-388-2227.
payments on debts with smaller               4. Find Out Your                             fixed number of payments, such as
interest rates. When the debt with the
highest interest rate is paid off in full,
                                             Credit Score:                                gasoline or retail store credit cards).   If You Are Facing Bankruptcy
                                             Your credit score is used by lenders to    • Don’t move debt around. Opening           Recent Federal law requires
apply the same aggressive payment
                                             determine whether you qualify for a          new cards with low introductory           mandatory credit counseling
strategy to the debt with the next                                                                                                  before you can declare bankruptcy.
                                             specific loan, credit card, or financial     rates to move large balances from
highest interest rate, and so on.                                                                                                   Go to
                                             service. The better (higher) a credit        accounts with higher interest may
However, if interest rates on your debts     score, the lower the interest rates          be risky. If you don’t pay the balance    debt.shtm to download “Before
are similar, you may want first repay the    charged on current and future loans.         off in full before the introductory       You File for Personal Bankruptcy:
debt with the lowest balance owed.                                                        rate expires, you may end up paying       Information about Credit Counseling
                                             Your credit score is based on the            even higher interest rates later.         and Debtor Education.” The U.S.
Paying off even a small debt provides
                                             amount of credit you already have,           Opening and closing cards can also        Department of Justice Trustee
a sense of accomplishment that can
                                             your debt-to-income ratio, and your          negatively affect your credit score.      Program approves organizations
energize you to tackle larger debts.
                                             payment history. For a fee, you can                                                    to provide mandatory counseling
                                             get your credit score information at       • Re-establish your credit history if you   before you can declare bankruptcy
                                                                  have had problems. Open a new             and mandatory debtor education
                                                                                          account and pay it off on time - this     after you declare bankruptcy. Go to
                                                                                          will raise your credit score over time.

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