fiscal fitness: getting out of debt

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  • 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?

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