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					  Debt Know How
       A Debt Education Program
               created by
   MasterCard in partnership with the
University of Minnesota Extension Service
Welcome to Debt Know How


  • Resource to help consumers get out of debt


  Includes:
  • Website – www.debtknowhow.com
  • Debt education workshops



                                                 2
Workshop Goal


  Participants will:
  • Increase knowledge about debt issues
  • Assess personal debt
  • Develop action plan to pay off debt and
    improve credit score



                                              3
Debt Overview
Debt in America


  • Consumer spending accounts for more than
    two-thirds of total economic activity
    (FDIC)

  • Approximately 45% of Americans carry no
    outstanding balance on their credit cards
    (Staff Working Paper, Federal Reserve 2004)

  • 1 in 20 American households are in high debt
    (MSN Money)



                                                   5
Debt in America


  • Consumer credit comes from mortgage debt,
    home equity loans and credit cards
  • Consumer debt was $9.8 trillion in 2004
  • Almost 80% from residential mortgages
  • About 8% comprised of credit card debt

  Source: The Nilson Report



                                                6
Common Reasons for
Getting into Debt


  • Loss of job
  • Divorce
  • Medical crisis
  • Overspending
  • Unexpected home or car expenses
  • Bad money advice or fraud

                                      7
Debt Warning Signs Quiz
How Did You Score?


  Total Points from Debt Warning Signs Quiz
  • 0 - Congratulations
  • 1 - 4 Pay attention to early warning signs
  • 5 - 10 Already deep in debt




                                                 9
Assess Your Finances
How Much Money Do You Earn?


  Calculate Total Monthly Income
  • Salary & wages
  • Tips
  • Commissions
  • Bonuses
  • Interest/dividends
  • Veteran’s benefits
                                   11
Where Does Your Money Go?


  Calculate Total Monthly Expenses
  • Housing
  • Savings & set–aside funds
  • Food
  • Health care & insurances
  • Transportation
  • Personal
  • Debt payments & fees
  • Recreation & entertainment
  • Past due bills & debts
                                     12
Where Does Your Money Go?


  Subtract Total Expenses from Total Income
      to get Total Monthly Cash Flow


  Total Monthly Income         + _____
  Total Monthly Expenses        - _____
  Monthly Cash Flow             = _____

                                              13
Assess Your Finances


  Tips
  • Positive cash flow means it’s working
  • Negative cash flow means spend less
  • Use your budget to make changes
  • Track spending
  • Find money

                                            14
Measure Your Debt

  Calculate Total Monthly Non-Mortgage Debt:
  • Credit cards
  • Home equity loan
  • Store cards
  • Vehicle loan
  • Family loan
  • Past due debt
                                               15
Measure Your Debt


                    www.debtknowhow.com:
                    Budget calculator will
                    help individuals tailor
                    information to best suit
                    their needs




                                               16
Measure Your Debt


  Calculate Debt Payments-to-Income Ratio:


  • 20 % or higher – take action to pay
    down debt




                                             17
Measure Your Debt

 Debt Payments-to-Income Ratio =
                Monthly Debt Payments
                Monthly Take-Home Pay


                  Example:
    $1,105
    $5,275 = 21% Debt-to-Income Ratio


                                        18
Measure Your Debt


                    www.debtknowhow.com:
                    Understanding your debt-
                    to-income ratio is crucial
                    to determining the correct
                    path out of debt




                                                 19
Improve Your Credit Score
Credit History



  • Positive credit history leads to opportunities


  • Problems with credit leads people to action




                                                     21
Credit History and Score


  • Credit reporting bureaus maintain files on
    borrowers
  • Experian, Equifax, and Trans Union
    – major credit reporting bureaus

  • Lenders use the information when making
    credit decisions
  • Order your credit report each year
                                                 22
Request Your Credit Report


             To order your credit report:
                       on-line
           www.annualcreditreport.com
                       or call
                  1-877-322-8228
                       or write
        Annual Credit Report Request Service
                  P. O. Box 105281
              Atlanta, GA 30348-5281
                                               23
Access to Your Credit Report


    You are entitled to free credit reports at any
    time if:
  • Denied credit or employment
  • Victim of fraud
  • Receiving welfare benefits
  • Unemployed and looking for work

                                                     24
What’s in Your Report?


  Personal Identifying Information
  Your Name                       Social Security #: 123-45-6789
  123 Current Address             Date of Birth: February 1, 1960
  City, State 00000


  Previous Address(es)
  456 Former Rd., Somewhere, ST 11111
  P.O. Box xxxx, Anywhere, ST 22222


  Last Reported Employment: Account Manager, Any Co.
                                                                    25
What’s in Your Report?


  Public Record Information & Collections

  Lien Filed 03/03; Good CTY; Case or ID #4321; Amount $26000;
     Class – State; Released 07/03; Verified 07/03


  Bankruptcy Filed 12/02; Northern District Ct; Case or ID #55HC44;
     Liabilities - $16000; Personal; Individual; Discharged; Assets- $800


  Collection Reported 05/96; Assigned 09/94 to Oldcoll (800)xxx-xxxx
     Client – ABC Hospital; Amount-$1010; Unpaid; Balance $1010;
     Date of Last Activity 09/94; Individual Account; Account #2345


                                                                            26
What’s in Your Report?


 Credit Account Information
       Company Name         Account   Whose      Date     Months    Date of    High     Terms      Items as of date reported       Date
                            Number    Account   Opened   Reviewed    Last      Credit                                            Reported
                                                                    Activity                    Balance     Past        Status
                                                                                                            Due

        Department          32514        J      10/86      36        9/97      $950                $0                     R1      10/97
          Store

          Bank             1004735      A       11/86      24        5/97      $750                $0                     I1      4/97

       Oil Company          541125      A       6/86       12        3/97      $500                $0                     O1      4/97

       Auto Finance         529778       I      5/85       48       12/96      $1100    $50      $300        $200         I5      7/97




Previous Payment History: 3 times 30 days late; 4 times 60 days late; 2 times 90+ days late
Previous Status: 01/97 – I2; 02/97 – I3; 03/97 – I4



                                                                                                                                            27
What’s in Your Report?


  Inquiries
  Home Mortgage   10/10/01           Real estate loan $214,000
  10 Oak Lane                        for state bank with 30 yr. term.
  Any, MN 22222                      scheduled until 10/2003


  07/29/98        XYZ BankCard
  04/12/97        GHG Department Store
  02/24/00        Department Store
  05/02/00        Mortgage


                                                                        28
Dispute Errors

  1. Make a copy of your credit report and mark items
     you suspect are incorrect.
  2. Write a letter to the reporting agency and explain the
     disputed items.
  3. Request an investigation and send copies of
     supporting documents.
  4. Tell the creditor in writing that you dispute an item.
  5. Keep copies of all correspondence.

                                                              29
Credit Scoring

  • Credit score is an evaluation of a person’s
    credit worthiness
  • Credit scores change overtime
  • Scores range from about 350 to more
    than 800
  • Lenders use scores plus other information
  • Most well known score is FICO (Fair Isaac
    Corporation.)
                                                  30
Base for Credit Scores


  • Payment history -            35%
  • Amounts owed -               30%
  • Length of credit history -   15%
  • Taking on more debt -        10%
  • Types of credit used -       10%



                                       31
Tips to Improve Your Score


  • Pay bills on time
  • Missed a payment? Get current and stay
    current
  • Keep balances low on credit cards and other
    revolving credit
  • Pay off debt rather than move it around


                                                  32
Tips to Improve Your Score


  • Don’t close unused credit cards as a short
    term strategy
  • Don’t open unnecessary lines of credit
  • Shop for rates within a focused time (ex. auto
    loan, home equity loan)
  • It’s okay to request and check your own score


                                                     33
Action Plan
Pay Off Your Debt
Take Action Now


  • Assess the problem
  • Set a goal
  • Generate new income
  • Create your plan
  • Track spending
  • Save on interest and late fees

                                     35
Pay Off Your Debt
Take Action Now


  • Choose a method to pay off debt
  • Contact creditors
  • Consider a loan consolidation
  • Seek help if overwhelmed
  • Bankruptcy



                                      36
Pay Off Your Debt
Take Action Now

  • Assess the problem
     – Determine why you are in debt
     – Curb spending
     – Determine amount of debt accumulated


  • Set a goal
     – Set smaller goals
     – Keep motivated


                                              37
Debt Reduction Goal
Action Plan

  Overall Goal:
  Reduce my debt by $__________ in __________months

  Monthly Goals:
  Reduce my debt by $_________ every month

  Increase my income by $________ each month
  Reduce my expenses by $________ each month

  Additional action steps I will take to reach my goal:
  1.
  2.                                                      38
Pay Off Your Debt
Take Action Now


  • Generate new income
     – Take a second job
     – Sell assets
     – Use money in low-interest bank accounts


  • Create your plan
     – Spending decisions
     – Stick to a budget
     – No new debt

                                                 39
Pay Off Your Debt
Take Action Now


  • Track spending
    – Find daily savings


  • Save on interest and late fees
    – Ask each credit card lender for a lower
      interest rate
    – Prioritize your debts by interest rates

                                                40
Pay Off Your Debt
Take Action Now

  • Choose a method to pay off debt
     – Highest interest rate first
     – Smallest debt first
     – Pay more than the minimum


  • Contact creditors
     – Explain the problem
     – Try to work out a modified plan
     – Make the agreed upon payments

                                         41
Pay Off Your Debt
Take Action Now

  • Consider a loan consolidation
     – Multiple loans consolidated into one loan
     – Lower interest rate
     – Easier to focus on one loan than several
     – Don’t add new debt


  • Seek help if overwhelmed
     – See a reputable credit counselor
     – Renegotiates loan terms
     – Ask about fees
                                                   42
Pay Off Your Debt
Take Action Now


  • Bankruptcy


    Bankruptcy Reform Act
    – Based on income and ability to pay
    – Chapter 7 or Chapter 13
    – Means test is required
    – Will vary according to state average income
    – Must receive credit counseling before bankruptcy
    – Must complete debt education before being discharged

                                                             43
Resources


  • Government Sites
    Federal Reserve Board – www.federalreserve.gov
    Federal Trade Commission – www.ftc.gov
    U.S. Department of Justice – www.usdoj.gov
    Cooperative Extension – www.csrees.usda.gov
    U.S. Bankruptcy Courts – www.uscourts.gov
    Financial Literacy & Education – www.mymoney.gov


                                                       44
Resources


  • Debt & Credit Management
    Freddie Mac – www.freddiemac.com
    MasterCard Worldwide – www.mastercard.com
    MasterCard – www.debtknowhow.com
    Your Credit Card Companies –
        www.yourcreditcardcompanies.com




                                                45
Resources


  • Accessing Your Credit Report
    Annual Credit Report – www.annualcreditreport.com
    Equifax – www.equifax.com
    Experian – www.experian.com
    Trans Union – www.transunion.com
    MyFico, a division of Fair Isaac Corporation
       www.myfico.com



                                                        46
     Evaluation

Help us for future trainings!
For information about MasterCard’s
Debt Know How program


   Patrick Dwyer                     Cindy M. Petersen
      MasterCard Worldwide              University of Minnesota
      2000 Purchase Street              Regional Extension Educator
      Purchase, NY 10577                Family Resource Management
      Tel: (914) 249-6637               980 - 2nd Avenue SE
      Fax: (914) 249-3648               Hutchinson, MN 55350
      patrick_dwyer@mastercard.com      Tel: (320) 234-0440 or 1-888-241-
                                        3207
                                        Fax: (320) 234-0444
                                        peter210@umn.edu




                                                                            48
Bibliography

  Materials have been adapted from the following sources:
  Anthes, William L., Ph.D. Twelve Ways to Get Out of Serious
  Debt, National Endowment for Financial Education,
  February 3, 2003
  U.S. Department of Justice and Cooperative Extension Service
  conference call, July 21, 2005
  Bankruptcy Reform, BankruptcyAction.com
  MyFICO What’s in Your Credit Report, myfico.com
  Lifelong Money Management, Home Ownership Center,
  St. Paul, MN
                                                                 49
MasterCard Worldwide
in partnership with the
University of Minnesota Extension Service
Cindy M. Petersen, M.Ed., A.F.C
University of Minnesota Extension Service Regional
Extension Educator
Family Resource Management
In consultation with:

Jean W. Bauer, Ph.D.
Family Economist
University of Minnesota Extension Service


                                                     50

				
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