Overcoming Debt

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					Overcoming Debt
    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?
Long-Term Benefits
•  Mortgage
•  Education
•  Automobile
•  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

   Principal:           $3000
   Rate:                15%
   Payments:            $100
   Total Payments:      $3,784

                 It cost you $3,784 to spend $3,000!
    Trouble Signs?

•    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,
     gas, etc.)
•    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 (
    - Debt Management Plan (“DMP”)
Managing Spending – Create a
Spending Plan

             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%
    $50 payment

•    Credit card #2 - $3000 balance, 15%
    $100 payment

•    Credit card #3 - $5000 balance, 18%
     $100 payment

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 (
•   Take time to understand your spending and savings habits and
    goals. Are they in sync?
•   Find a strategy to get out of debt!
         WorkLife4You Resources
              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
Let WorkLife4You
Make Your Life a Little Easier!
Contact WorkLife4You 24/7:
1-877-WL4-NOAA (1-877-954-6622)
(TTY 800-873-1322)
— Look for the Member Login box
— Not a registered member yet? Follow
the “Start Now” link and enter
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