- 1. FISCAL FITNESS: Getting Out of Debt
2. OBJECTIVES
- Discuss the advantages of reducing debt.
- Learn strategies for reducing debt.
3. CREDIT IS A USEFUL TOOL
4. Used wisely, credit helps you reach important goals 5. Credit
can be a balland chain 6. TWO MAIN TYPES OF CREDIT
- Usually secured by collateral
7. SECUREDvs.UNSECURED
- Debt is secured with collateral, i.e., a cosigner or
property
- If you fail to make payments, the creditor seizes the
collateral
- For this reason, secured debts are higher in priority
- Credit card, medical debt and other debts without collateral or
a cosigner are unsecured
- Creditors have nothing to seize, and are typically more
aggressive about collections
8. CREDIT CARDS
- Interest rates vary for similar cards
- May charge annual and other fees
- Require monthly minimum payment
- Unsecured (unless deposit required)
9. THE AVERAGE HOUSEHOLD
- Owes $2,580.79 in credit card debt
- Pays as much as $1000 per year in finance charges
10. AVERAGE BALANCE & NUMBER OF CREDIT CARDS (1995)
$2,580.79 5.6 TOTAL $50.00 1.5 Other $244.56 1.1 Diners, etc.
$195.95 2.0 Gas Cards $821.03 3.2 Store Cards $2,537.29 2.4 Bank
Cards BALANCE NUMBER CARD TYPE 11. What you should know about...
MINIMUM PAYMENTS
- Typically just 2% of outstanding balance
- Most of the payment is interest
- Extends the length of time for payback
- Increases finance charges
12. An example:
- You owe $1,000 on a credit card
- The minimum payment is $20
13.
- Pay only the required 2% minimum: it will take 19 years and 4
months, and cost you more than $1,931 in interest.
- Pay $20 per month: it will take 7 years and 2 months to pay off
the card, and cost more than $860 in interest.
- Pay $50 per month: it will take only 2 years to pay off the
card, and cost less than $200
14. Getting out of debt...
- Gives you more flexibility
- Frees up money for other purposes
15. Keys to getting out of debt:
- Assess your situation.Do you need help?
16. STOPusing credit!
- Leave credit cards at home
- Close accounts and cut up cards
- Keep a card for emergencies--and use it only when you must
17. ASSESS YOUR SITUATION
- List all your debts (balance, minimum payment and APR)
- Can you afford your minimum payments?
- Can you afford to make extra payments?
If not, you may need help to repay your debt 18. OPTIONS TO
CONSIDER
- Ask creditors to reduce interest rates
- Consider transferring balances to lower-rate cards
- Think about using home equitybut beware!
19. USE POWER PAYMENTS
- Make the minimum payment on all your debts BUT one.
- Add every extra penny to that one power payment.
- When that debt is paid, apply that payment to another debtuntil
all debts are repaid.
20. POWER PAY STRATEGIES
- Loan with highest interest rate
21. Complete the PowerPay Credit Payment Worksheet 22. RETURN
THE FORM
- How long to get out of debt
- How much you will pay in interest
You will receive an analysis which shows for each strategy: 23.
Use this information to develop your debt reduction plan 24.
QUESTIONS?