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Copyright © 2014 by IMPACT Solutions, All Rights Reserved. This document may not be reproduced or duplicated in whole or in part by any means whatsoever without the prior written authorization of IMPACT Solutions. Handling Credit and Debt Wisely Robert Neubauer Apprisen

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Page 1: Handling Credit and Debt Wisely...On Revolving Credit Cards » Most minimum payments are generally 3% - 4% of the balance » Minimum payment covers finance charge and small bit of

Copyright © 2014 by IMPACT Solutions, All Rights Reserved. This document may not be reproduced or duplicated in whole or in part by any means whatsoever without the prior written authorization of IMPACT Solutions.

Handling Credit and Debt Wisely

Robert NeubauerApprisen

Page 2: Handling Credit and Debt Wisely...On Revolving Credit Cards » Most minimum payments are generally 3% - 4% of the balance » Minimum payment covers finance charge and small bit of

Handling Credit and Debt Wisely

Page 3: Handling Credit and Debt Wisely...On Revolving Credit Cards » Most minimum payments are generally 3% - 4% of the balance » Minimum payment covers finance charge and small bit of

Victor Russell

Presenter
Presentation Notes
Apprisen: A National Non-profit whose mission is to help people improve their financial well-being through counseling, community outreach and financial education. A 501 (c)(3) non-profit corporation that has been in business for over 55 years We have helped over a half-million individuals and families learn to manage money, balance their budgets and get out of debt. Community Outreach: As part of our mission, Apprisen feels very strongly that “Getting and Staying on Track” with your money is essential to ones success. So, we have developed a 7 part educational series that includes workshops and webinars to help individuals better prepare their financial lives. Today’s Webinar falls under the category of “Managing Debt”
Page 4: Handling Credit and Debt Wisely...On Revolving Credit Cards » Most minimum payments are generally 3% - 4% of the balance » Minimum payment covers finance charge and small bit of

IMPACT Employee Assistance Program

» You need to be able to answer these questions:

• What is debt?• How do we get into debt?

Challenging Questions

Page 5: Handling Credit and Debt Wisely...On Revolving Credit Cards » Most minimum payments are generally 3% - 4% of the balance » Minimum payment covers finance charge and small bit of

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Yesterday • Generally paid cash• Didn’t buy until they had

the money (people actually saved money)

• Borrowed only in case of extreme emergency or need

• Credit decision took weeks (no credit scoring)

• 8 Billion dollars of revolving debt

Credit and DebtToday• Instant credit is routine• We spend more than we earn • Borrow for any and all

purposes• Credit widely available• Credit scoring

• New credit products• 849 Billion dollars of revolving

debt ++

++ Federal Reserve Bank -December 2012

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IMPACT Employee Assistance Program

Total U. S. Credit Card Debt

Page 7: Handling Credit and Debt Wisely...On Revolving Credit Cards » Most minimum payments are generally 3% - 4% of the balance » Minimum payment covers finance charge and small bit of

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America’s Savings Rate

http://research.stlouisfed.org/fred2/graph/?s%5b1%5d%5bid%5d=PSAVERT
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IMPACT Employee Assistance Program

You need to be able to answer these questions:

» Is there “good” debt?» What is bad debt?

Challenging Questions

Page 9: Handling Credit and Debt Wisely...On Revolving Credit Cards » Most minimum payments are generally 3% - 4% of the balance » Minimum payment covers finance charge and small bit of

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Debt can build assets

» Home Purchase» Rental Properties» Purchase an Appreciating

Asset

Good Debt Builds Wealth

Debt can lead to opportunities

» School Loans» Transportation» Invest in Your Business

Page 10: Handling Credit and Debt Wisely...On Revolving Credit Cards » Most minimum payments are generally 3% - 4% of the balance » Minimum payment covers finance charge and small bit of

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What are “Bad Debts?”

» Debt that doesn’t help to build asserts» Debt with high interest rates» Debt used for disposable items (food)» Purchasing more than you need

Debt to Reconsider

Page 11: Handling Credit and Debt Wisely...On Revolving Credit Cards » Most minimum payments are generally 3% - 4% of the balance » Minimum payment covers finance charge and small bit of

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Truth in Lending Disclosures

» Annual percentage rate» Fees» Grace period» Balance/Interest computation

Debt Can Be an Obstacle to Building Wealth

Page 12: Handling Credit and Debt Wisely...On Revolving Credit Cards » Most minimum payments are generally 3% - 4% of the balance » Minimum payment covers finance charge and small bit of

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Installment Loans

» Car, Boat, RV loans» Generally, a fixed payment for a fixed amount

(includes principal and interest) for a fixed amount of time

» Example: Car loans can be financed from 36-72 months. Be very cautious about financing for longer terms.

Types of Credit/Debt

Page 13: Handling Credit and Debt Wisely...On Revolving Credit Cards » Most minimum payments are generally 3% - 4% of the balance » Minimum payment covers finance charge and small bit of

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Mortgage Loans

» 15-30 years» Fixed» Adjustable» Interest Only» Equity Loans

Types of Credit/Debt

Page 14: Handling Credit and Debt Wisely...On Revolving Credit Cards » Most minimum payments are generally 3% - 4% of the balance » Minimum payment covers finance charge and small bit of

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Revolving Credit

» Credit Cards» Department store cards» Home equity lines of credit (HELOC)» Costs to consider:

Interest rate Fees Grace Period

Types of Credit/Debt

Page 15: Handling Credit and Debt Wisely...On Revolving Credit Cards » Most minimum payments are generally 3% - 4% of the balance » Minimum payment covers finance charge and small bit of

IMPACT Employee Assistance Program

You need to be able to answer these questions:

» How do we manage debt wisely?» What is an acceptable amount of debt?

Challenging Questions

Page 16: Handling Credit and Debt Wisely...On Revolving Credit Cards » Most minimum payments are generally 3% - 4% of the balance » Minimum payment covers finance charge and small bit of

IMPACT Employee Assistance Program

General rule of thumb:Your debt payments, not including your mortgage, should not exceed more than 15-20% of your take home income. Including the following:» Car Loans» Personal Loans» Student Loans» Minimum Payments on Credit Cards» Home Equity Loans

How Much is Too Much?

Page 17: Handling Credit and Debt Wisely...On Revolving Credit Cards » Most minimum payments are generally 3% - 4% of the balance » Minimum payment covers finance charge and small bit of

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It’s a simple calculation:» Debt Ratio = Average Monthly Debt Payment/Take Home Pay» Example for a family bringing home $2200 each month and

having debt payments of $400

$400/$2200 = 18%

Finding Your Debt Ratio

Page 18: Handling Credit and Debt Wisely...On Revolving Credit Cards » Most minimum payments are generally 3% - 4% of the balance » Minimum payment covers finance charge and small bit of

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On Revolving Credit Cards

» Most minimum payments are generally 3% - 4% of the balance

» Minimum payment covers finance charge and small bit of the principal

» To pay off the credit card more quickly, pay more than the minimum

Credit Card Payments

Page 19: Handling Credit and Debt Wisely...On Revolving Credit Cards » Most minimum payments are generally 3% - 4% of the balance » Minimum payment covers finance charge and small bit of

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The chart assumes a minimum payment of 3.5%, that you are not making additional purchases and that you are making your monthly payments on time.

Cost of Making Minimum Payments

ITEM PRICE APR INTEREST PAID

THE TRUE COST OF THE ITEM

TOTAL YEARS TO PAY OFF

TV $500 18% $251 $751 5.5

Computer $1,000 18% $626 $1626 8.3

Furniture $2,500 18% $1751 $4271 12

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Balance • Interest Rate • Minimum Payment % • Minimum Payment$2500 18% 3.5% $88

Paying extra saves $$

AMOUNT PAID PAY OFF TIME

TOTAL FINANCE CHARGES

TOTAL AMOUNT PAID

Just minimum 12 years $1751 $4251

Minimum + $10 7 years $1201 $3701

$88 constant payment

3 years $ 782 $3282

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As with credit cards, the more you pay, the more you save.

Mortgage Loan Repayment

$100,000 TERM APR INTEREST PAID

TRUE COST

TOTAL YEARS TO PAYOFF

Mortgage$658 per month

30 Yrs 6.9% $137,096 $237,096 30 Yrs

Pay an extra $50 per month 30 Yrs 6.9% $106,196 $206,196 24 Yrs

Pay an extra $100 per month 30 Yrs 6.9% $87,707 $187,707 20 Yrs

Page 22: Handling Credit and Debt Wisely...On Revolving Credit Cards » Most minimum payments are generally 3% - 4% of the balance » Minimum payment covers finance charge and small bit of

IMPACT Employee Assistance Program

You need to be able to answer these questions:

» Where can you find extra money?» How do we get into debt?

Challenging Questions

Page 23: Handling Credit and Debt Wisely...On Revolving Credit Cards » Most minimum payments are generally 3% - 4% of the balance » Minimum payment covers finance charge and small bit of

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» Create a spending plan» Prioritize spending» Increase income

Any additional income or dollars found should be used to pay on debt.

Power Payment Plan

*Based on materials created by Kiss, D. Elizabeth and Linda Boelter. 2000. Money 2000 and Beyond: Using Power Payments to Pay off Debt. Madison, WI: University of Wisconsin-Extension, Cooperative Extension.

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Create a master list of creditors

Creating a Power Payment Plan

CREDITOR BALANCE PAYMENT INTEREST RATE

POWER PAYMENT

Bank Card

$500 $10 12% $50

DepartmentStore

$950 $19 24% $19

Car Loan $5500 $150 6.99% $150

Total $6950 $179 $219

Page 25: Handling Credit and Debt Wisely...On Revolving Credit Cards » Most minimum payments are generally 3% - 4% of the balance » Minimum payment covers finance charge and small bit of

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» High interest rate short term loans» Typical borrower: white female, age 25-44» Interest rates can exceed 390% APR» Average annual income less than $40,000» Typical use is for ordinary living expenses, not emergencies» 12 million adults use payday lending annually» Each loan averages $375 and they pay $520 per year in

interest» If payday lending was not available, most people would cut

back on expenses

Payday LendingBe very careful

The Pew Charitable Trust (July 2012); Payday Lending in America: Who Borrows, Where and Why.

Page 26: Handling Credit and Debt Wisely...On Revolving Credit Cards » Most minimum payments are generally 3% - 4% of the balance » Minimum payment covers finance charge and small bit of

IMPACT Employee Assistance Program

1. Know what you owe

2. Live within your means

3. Spend less than you earn

4. Borrow only what you can afford

5. Recognize the warning signs of financial difficulty

6. Maintain a good credit rating

7. Check your credit report annually

8. Guard against Identity Theft

8 Rules of Smart Credit ManagementFollow these steps and handle your money wisely

Page 27: Handling Credit and Debt Wisely...On Revolving Credit Cards » Most minimum payments are generally 3% - 4% of the balance » Minimum payment covers finance charge and small bit of

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Want more information?

Additional Resources

• www.apprisen.com

• www.bankrate.com

• www.quicken.com

• www.money.msn.com

• www.annualcreditreport.com877-322-8228

• www.credit.com

• www.scoreinfo.org(consumer site re: FICO scores)

• www.creditkarma.com

http://www.money.msn.com/
http://www.annualcreditreport.com/
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2/24/2020 © Apprisen. All rights reserved

28

For more information about managing your personal finances, call Apprisen at:

1-800-355-2227

Page 29: Handling Credit and Debt Wisely...On Revolving Credit Cards » Most minimum payments are generally 3% - 4% of the balance » Minimum payment covers finance charge and small bit of

IMPACT Employee Assistance Program

» Free and confidential assistance for:

» Unlimited phone consultation available 24/7» Complimentary face-to-face counseling sessions per

person, per occurrence» Legal assistance» Financial assistance» Identity theft prevention and recovery assistance» Comprehensive Work/Life web site» And much more!

IMPACT Provides You:

You Spouse/Partner Children/Dependents

Parents/Parents-in-law Anyone living in your

household

Page 30: Handling Credit and Debt Wisely...On Revolving Credit Cards » Most minimum payments are generally 3% - 4% of the balance » Minimum payment covers finance charge and small bit of

IMPACT Employee Assistance Program

Contact the IMPACT Solutions

Employee Assistance & Work/Life Program by

Calling 800-227-6007 or

Visiting www.myimpactsolution.com

For Further Assistance

http://www.myimpactsolution.com/

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