fiscal fitness: getting out of debt
Post on 22-Jan-2015
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- 1. FISCAL FITNESS: Getting Out of Debt
- Discuss the advantages of reducing debt.
- Learn strategies for reducing debt.
- Discover Power Payments
3. CREDIT IS A USEFUL TOOL
- 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
- Fixed payment
- Fixed time period
- Usually secured by collateral
- Payment varies
- Open-ended time period
- Usually not secured
- 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%
- 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?