Debt Reduction
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Liz Pomplun, Associated Bank - Business Development Officer Today in our discussion we will talk about the top 10 things you should know when it comes to good vs. bad debt. Where do you personally stand with your debt? We will practice a 'Total Money Makeover'. Tips to eliminate credit card debt and how to get your spending under control.
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Debt Reduction
- 1. DEBT REDUCTION FINANCIAL EDUCATION SERIES Regarding Web sites and other sources, the information conveyed is for information purposes only. No endorsement is implied. Neither Associated Banc-Corp nor any of its affiliates give tax or legal advice. Consult with your tax and/or legal advisor for information specific to your situation.
- 2. AGENDA • Top things you should know • Where do you stand? • Total Money Makeover • Eliminating credit card debt • Tips to get your spending under control • Your questions 1
- 3. TOP THINGS YOU SHOULD KNOW 1. Americans are loaded with credit card debt. 2. Some debt is good. 3. Some debt is bad. 4. Get a handle on your spending. 5. Pay off your highest-rate debts first. 6. Don't fall into the minimum trap. 7. Watch where you borrow. 8. Expect the unexpected. 9. Don't be so quick to pay down your mortgage. 10. Get help as soon as you need it. 2 -money.cnn.com
- 4. WHERE DO YOU STAND? Revolving Debts (credit cards, store charge cards, car loans) Card/Loan Amount owed Int. Rate Est. annual interest payment Ex. Visa $4,379.27 17.65% $4,379.27 x 0.1765 = $772.94 ________ ________ ______ _______________________ ________ ________ ______ _______________________ ________ ________ ______ _______________________ ________ ________ ______ _______________________ ________ ________ ______ _______________________ ________ ________ ______ _______________________ Total ________ _______________________ Mortgages, home equity loans/ lines, student loans Card/Loan Amount owed Int. Rate Est. annual interest payment ________ ________ ______ _______________________ ________ ________ ______ _______________________ ________ ________ ______ _______________________ ________ ________ ______ _______________________ ________ ________ ______ _______________________ ________ ________ ______ _______________________ Total ________ _______________________ 3 -The Motley Fool Do you have too much revolving debt? Total revolving credit/auto loan debt: ______________ Total after-tax annual income: ______________ Debt-to-income ratio: ______________
- 5. TOTAL MONEY MAKEOVER 1. Save $1,000 2. The “debt snowball” 3. Finish the emergency fund 4. Maximize retirement investing 5. College funding 6. Pay off the home mortgage 7. Build wealth 4 -Dave Ramsey’s Total Money Makeover
- 6. ELIMINATING CREDIT CARD DEBT 1. Plan the pay-off order. 2. Reduce your interest rates with a phone call. 3. Create a budget. 5
- 7. TIPS TO GET SPENDING UNDER CONTROL • Don’t spend what you don’t have. • Build up a cash cushion. • Use cash more often. • Put everything in writing. • Cut spending and apply savings to debt. 6 -Lynette Khalfani, Zero Debt BONUS TIP: To make sure you haven’t forgotten any creditors, order your credit reports.
Notas do Editor
- Welcome participants. Ensure everyone receives the following: a copy of the corresponding handout, your business card and any applicable brochures for related products and/or services as well as any current promotions you’d like to discuss. Please also bring along business cards of any partners you may discuss or mention. Introduce yourself, the Financial Education Series and its purpose. If time permits, ask participants to introduce themselves and share a question or concern they may have about debt reduction. Explain that this is one of many topics within the Financial Education Series. Other topics include: Budgeting, Identity Theft, Understanding Your Credit Score, Saving for College, and IRAs. Encourage future participation in topics of interest. Introduce Debt Reduction topic and handout.
- Review agenda items.
- The average American household with at least one credit card has nearly $9,200 in credit card debt, according to CardWeb.com, and the average interest rate runs in the mid- to high teens at any given time. Borrowing for a home or college usually makes good sense. Just make sure you don't borrow more than you can afford to pay back. Don't use a credit card to pay for things you consume quickly, such as meals and vacations, if you can't afford to pay off your monthly bill in full in a month or two. There's no faster way to fall into debt. Instead, put aside some cash each month for these items so you can pay the bill in full. Most people spend thousands of dollars without much thought to what they're buying. Write down everything you spend for a month, cut back on things you don't need, and start saving the money left over or use it to reduce your debt more quickly. The key to getting out of debt efficiently is first to pay down the balances of loans or credit cards that charge the most interest while paying at least the minimum due on all your other debt. Once the high-interest debt is paid down, tackle the next highest, and so on. If you just pay the minimum due on credit card bills, you'll barely cover the interest you owe, to say nothing of the principal. It will take you years to pay off your balance, and potentially you'll end up spending thousands of dollars more than the original amount you charged. It may be convenient to borrow against your home or your 401(k) to pay off debt, but it can be dangerous. You could lose your home or fall short of your investing goals at retirement. Build a cash cushion worth three months to six months of living expenses in case of an emergency. If you don't have an emergency fund, a broken furnace or damaged car can seriously upset your finances. Don't pour all your cash into paying off a mortgage if you have other debt. Mortgages tend to have lower interest rates than other debt, and you may deduct the interest you pay on the first $1 million of a mortgage loan. If you have more debt than you can manage, get help before your debt breaks your back. There are reputable debt counseling agencies that may be able to consolidate your debt and assist you in better managing your finances. There are free services. Some counseling is very expensive. Source: Spring, 2008.
- Review ”Where do you stand?” (e.g., There’s a difference between ‘good’ and ‘bad’ or “revolving” debt. You should understand the effect of compound interest on both debt and savings. If you get on the wrong side of that compound divide, high credit-card interest rates can make if harder and harder for you to dig out. In order to get where you want to go, you need to know where you are starting from. Take some time to list all of the different debts you currently have, and divide them into “good” and “revolving” categories. It’s also important for you to know what kind of interest you’ll pay this year, which will involve a little math. ) Next discuss the “Do you have too much revolving debt” box. (e.g., Once you’ve completed this exercise, look at your total revolving debt – not your interest payments, but the debts themselves – and compare them this number to your annual after-tax income. The ideal number here is zero, but at the very least you want to keep revolving debt – including auto loans – to 15% or less of your after-tax income. Otherwise, your debt payments will eat up too big a chunk of your paycheck…) Mention that most lenders have stringent guidelines for unsecured credit… for example, not to exceed 20% of gross income disclosed. If you are over that, it is probably a red flag that you may have too much debt. Source: Spring, 2008. Move on to “Total Money Makeover” slide on next page…
- Explain that Dave Ramsay’s “Total Money Makeover” is a helpful plan to get you on the right track toward debt reduction and building wealth. Save $1,000 The Debt Snowball – List all debts except mortgage with the smallest payoff or balance first. Every dollar you can find from anywhere in the budget goes toward the smallest debt until it is paid until all debt except mortgage is paid off. Finish the Emergency Fund – A fully funded emergency fund covers three to six months of expenses. Maximize Retirement Investing – Invest 15% of your before tax income in retirement College Funding Pay off the Home Mortgage (after all other debt has been paid.) Build Wealth
- Plan the payoff order. Take a look at the list of revolving debts you compiled on the previous page. Write down your credit card debts again, but this time in order from highest interest rate to lowest. Generally, that’s the order in which you should be aiming to pay them off. Reduce your interest rates with a phone call. It is sometimes possible to reduce the interest rates you pay by negotiating with the credit card provider. While it may not work every time, you should definitely give it a try. Create a budget. Figure the size of your monthly cushion. There are two basic types of expenses – those you have to pay and those you don’t have to pay. An important piece of information, when it comes to planning your way out of debt, is the rough size of your monthly “cushion” – the money left over after you’ve taken care of your non-discretionary expenses (must-pay items). If it’s less than zero, you’re gong to have to make some pretty drastic changes to avoid eventual bankruptcy. If your cushion is positive, you’ll need to allocate as much as possible toward debt repayment.
- Don’t spend what you don’t have. Build up a cash cushion. Ideally, you should have three months’ expenses set aside for emergencies. Use cash more often. People tend to spend less when they are using cash (vs. credit cards). Mention debit cards as an option where cash isn’t appropriate. Put everything in writing. Create a written list or a spreadsheet itemizing each creditor you owe. For some people, this step will be a big eye-opener. You may find out that you have more debt than you thought. Bonus tip: To make sure you haven’t forgotten any creditors, order your credit reports. Cut spending and apply savings to debt. Look for ways to slash your spending. For example, if you own a car, you can refinance your auto loan and save big bucks. Ask participants to share their personal tips. Source: Spring, 2008.
- Discuss products/services available (e.g., Associated bankers are more than willing to review your loans, interest rates and investments to ensure you start off in the very best position possible…) To learn more, contact an Associated professional or visit www.associatedbank.com. Prior to the meeting ensure you fully understand the related products and/or services. Field any questions/comments/concerns related to debt reduction. Encourage participants to follow the tips provided and provide dates/information for future presentations of the Financial Education Series. Ask if there are any additional topics that they would like to learn more about (inform Learning & Development of new topic suggestions.) Thank participants for participating. Remain available for one-on-one questions until all participants have left.