Some statistics to consider
• Average credit card debt per household - $15,788 (May 2010)
• College loans alone now total almost $830 billion (said another way,
• Credit card penalties estimated at $20.5 billion in 2009
• National default rate on credit cards almost 28 percent
• Home foreclosure rate worst since Great Depression
• How did we get here?
• Good debt or bad
• Cost of credit
• Trouble signs
• Managing debt problems
• Managing your spending and savings
• Strategies to reduce or eliminate debt
How Did We Get Here?
• Credit card offers were easy to come by
• Great stock market run during 80’s and 90’s
• Home values appreciated
• Education expenses
• Medical expenses
• Putting off the inevitable
Good Debt or Bad Debt?
• Secured, lower rates
Short-Term Benefits (but long time to payoff)
• Credit Cards
• Store Cards
• Unsecured, higher rates
The Cost of Credit
“The most powerful force in the universe is compound interest” – Albert
Total Payments: $3,784
It cost you $3,784 to spend $3,000!
• You can only make the minimum payment each month
• You have late payment penalties
• You are using your credit card to pay regular expenses (groceries,
• Your total debt payments exceeds 35% of your take home pay (not
including your home mortgage)
Managing Debt Problems
• Contact your creditors first
• Try to work out a repayment plan you can handle
• Follow up in writing
• Consider a qualified Credit Counseling Agency (www.nfcc.org)
- Debt Management Plan (“DMP”)
Managing Spending – Create a
Fixed Expenses Discretionary Expenses
• Housing • Travel
• Utilities • Dining Out
• Car payment • Entertainment
• Insurance • Shopping
• Groceries • Sports/hobbies
• Club fees
• Cable/phone services
Manage Your Savings
• Pay yourself first
• Create Emergency fund
- determine appropriate size of fund
- set aside as savings, not investment
• Set aside money to reduce debt
Get Out of Debt!
• Freeze credit card spending
• Reduce discretionary spending
• Re-direct that spending to increase monthly payments
• Payoff one card
• Parlay increased payments to next card
Can You Reduce Spending by
• Credit card #1 - $1000 balance, 10%
• Credit card #2 - $3000 balance, 15%
• Credit card #3 - $5000 balance, 18%
Cutting back on discretionary spending allows us to save an
additional $50 a month that will be used to pay credit card #2
Impact on Credit Card #1
Original $50 monthly payment on $1000 balance
• 22 months, $98 interest
Add additional $50 from reduced discretionary spending ($100)
• 11 months, $48 interest
Payoff time cut in half!
Parlay Your Payments!
Credit Card #2 - $3000 balance was lowered to $2269 over 11 months it
took to repay Card #1
Add the amount of Card #1 payment to this monthly payment ($100 +
$100 = $200)
Payoff in 13 months, interest expense reduced to by $220!
Finish it up!
• Roll $200 from previous payments towards card #3, total of $300
• Current balance - $4284
Card paid off 17 months later
In 3 ½ years, you have eliminated $9000 of credit card debt!
And the winner is . . . You!
• Reduced interest payments by $2,327
• Cut payoff period in more than half (from 94 months to 41 months)
• And, most importantly, you are now debt free!
What if you could save more than $50?!
Getting Out of Debt Review
• The economy will change for better and for worse – adopt good
habit for any season
• Credit costs money – minimize your interest expenses
• Don’t wait too long before getting help if you are experiencing
problems dealing with your debt payments (www.NFCC.org)
• Take time to understand your spending and savings habits and
goals. Are they in sync?
• Find a strategy to get out of debt!
WorkLife4You web site
• Finance Web Service
• Audio Tips and Podcasts
– Credit & Debt Library Budgeting Basics, Money Management:
– Personal Finance Library Goals and Action Plans
• Interactive Calculators • On Demand Webinars
Savings Amount, Amount Saved, Save $5000 This Year, Make Money Not
Savings Rate, Spending Rate, How Excuses, How to Improve Your Credit
Much Can I Borrow? Score
• HTML Articles • WorkLife4You Guides
• Related Web Sites Personal Budgeting Worksheet, 66 Ways to
Save Money, Knee Deep in Debt
Make Your Life a Little Easier!
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