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Some statistics to consider


Academic year: 2021

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Overcoming Debt


Some statistics to consider

 Average credit card debt per household - $15,788 (May 2010)

 College loans alone now total almost $830 billion (said another way,


 Credit card penalties estimated at $20.5 billion in 2009

 National default rate on credit cards almost 28 percent

 Home foreclosure rate worst since Great Depression



06/29/2007 2:30pm eSlide - P4065 - LifeCare


 How did we get here?

 Good debt or bad

 Cost of credit

 Trouble signs

 Managing debt problems

 Managing your spending and savings

 Strategies to reduce or eliminate debt


How Did We Get Here?

 Credit card offers were easy to come by

 Great stock market run during 80’s and 90’s

 Home values appreciated

 Education expenses

 Medical expenses

 Putting off the inevitable



06/29/2007 2:30pm eSlide - P4065 - LifeCare

Good Debt or Bad Debt?

Long-Term Benefits




Secured, lower rates

Short-Term Benefits (but long time to payoff)

Credit Cards

Store Cards

Unsecured, higher rates


The Cost of Credit

The most powerful force in the universe is compound interest” – Albert Einstein

Principal: $3000

Rate: 15%

Payments: $100

Total Payments: $3,784

It cost you $3,784 to spend $3,000!



06/29/2007 2:30pm eSlide - P4065 - LifeCare

Trouble Signs?

 You can only make the minimum payment each month

 You have late payment penalties

 You are using your credit card to pay regular expenses (groceries, gas, etc.)

 Your total debt payments exceeds 35% of your take home pay (not including your home mortgage)


Managing Debt Problems

 Contact your creditors first

 Try to work out a repayment plan you can handle

 Follow up in writing

 Consider a qualified Credit Counseling Agency (www.nfcc.org) - Debt Management Plan (“DMP”)



06/29/2007 2:30pm eSlide - P4065 - LifeCare

Managing Spending – Create a Spending Plan

Fixed Expenses

 Housing

 Utilities

 Car payment

 Insurance

 Groceries

Discretionary Expenses

 Travel

 Dining Out

 Entertainment

 Shopping

 Sports/hobbies

 Club fees

 Cable/phone services


Manage Your Savings

 Pay yourself first

 Create Emergency fund

- determine appropriate size of fund - set aside as savings, not investment

 Set aside money to reduce debt



06/29/2007 2:30pm eSlide - P4065 - LifeCare

Get Out of Debt!

 Freeze credit card spending

 Reduce discretionary spending

 Re-direct that spending to increase monthly payments

 Payoff one card

 Parlay increased payments to next card


Can You Reduce Spending by $50?

 Credit card #1 - $1000 balance, 10%

$50 payment

 Credit card #2 - $3000 balance, 15%

$100 payment

 Credit card #3 - $5000 balance, 18%

$100 payment

Cutting back on discretionary spending allows us to save an additional $50 a month that will be used to pay credit card #2



06/29/2007 2:30pm eSlide - P4065 - LifeCare

Impact on Credit Card #1

Original $50 monthly payment on $1000 balance

 22 months, $98 interest

Add additional $50 from reduced discretionary spending ($100)

 11 months, $48 interest

Payoff time cut in half!


Parlay Your Payments!

Credit Card #2 - $3000 balance was lowered to $2269 over 11 months it took to repay Card #1

Add the amount of Card #1 payment to this monthly payment ($100 +

$100 = $200)

Payoff in 13 months, interest expense reduced to by $220!



06/29/2007 2:30pm eSlide - P4065 - LifeCare

Finish it up!

 Roll $200 from previous payments towards card #3, total of $300

 Current balance - $4284

Card paid off 17 months later

In 3 ½ years, you have eliminated $9000 of credit card debt!


And the winner is . . . You!

 Reduced interest payments by $2,327

 Cut payoff period in more than half (from 94 months to 41 months)

 And, most importantly, you are now debt free!

What if you could save more than $50?!



06/29/2007 2:30pm eSlide - P4065 - LifeCare

Getting Out of Debt Review

 The economy will change for better and for worse – adopt good habit for any season

 Credit costs money – minimize your interest expenses

 Don’t wait too long before getting help if you are experiencing problems dealing with your debt payments (www.NFCC.org)

 Take time to understand your spending and savings habits and goals.

Are they in sync?

 Find a strategy to get out of debt!


LifeCare Resources

Finance Web Service

Credit & Debt Library

Personal Finance Library

Interactive Calculators

Savings Amount, Amount Saved, Savings Rate, Spending Rate, How Much Can I Borrow?

HTML Articles

Related Web Sites

Audio Tips and Podcasts

Budgeting Basics, Money Management:

Goals and Action Plans

On Demand Webinars

Save $5000 This Year, Make Money Not Excuses, How to Improve Your Credit Score

LifeCare Guides

Personal Budgeting Worksheet, 66 Ways to Save Money, Knee Deep in Debt

LifeCare web site



Overcoming Debt


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