1. FISCAL FITNESS: Getting Out of Debt

2. OBJECTIVES

Discuss the advantages of reducing debt.

Learn strategies for reducing debt.

Discover Power Payments

3. CREDIT IS A USEFUL TOOL

Safe

Convenient

Widely accepted

Easy to use

4. Used wisely, credit helps you reach important goals 5. Credit can be a balland chain 6. TWO MAIN TYPES OF CREDIT

Installment

Fixed payment

Fixed time period

Usually secured by collateral

Revolving

Payment varies

Open-ended time period

Usually not secured

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

Revolving credit

Interest rates vary for similar cards

May charge annual and other fees

Require monthly minimum payment

Unsecured (unless deposit required)

9. THE AVERAGE HOUSEHOLD

Has 5.6 credit cards

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

The APR is 18%

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

in interest.

14. Getting out of debt...

Saves money

Gives you more flexibility

Frees up money for other purposes

Is a good investment

15. Keys to getting out of debt:

STOP using credit!

Assess your situation.Do you need help?

Consider options

Use Power Payments

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

Apply extra payment to:

Loan with highest interest rate

Loan with lowest balance

Loan with shortest term

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?