Yellow Ribbon Booklet

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  • 1. Chaplain
  • 2. VA Benefits
  • 3. Personal Finance
  • 4. !"#$"#!% Take Complete Control of Your Finances…. Avoid Drowning in Debt... Borrow Wisely! A Guide to Beating Debt Income Paycheck 1 $ 2,000 <> % % % Paycheck 2 $ 1,500 <> % % % Other %$ 500 <> % % % % % % Total Income $ 4,000 Expenses Mortgage %$ 950 % % Cars %$ 600 % % Insurance - Auto %$ 150 % % Insurance - Life % %$ 60 % % Credit Cards / Loans %$ 125 % % Phone / Cable % %$ 75 % % Utilities - Gas/Water/Electric %$ 125 % % Groceries %$ 250 % % Entertainment %$ 250 % % Gasoline for Cars %$ 100 % % Total Expense $ 2,685 % % % % % % NET INCOME $ 1,315This is what a sample budget would look like for one month. Notice this budget has a net income (i.e. this family has money lafter it pays all of its expenses.) You might find out as you put in actual numbers into your monthly budget, that you end up wnet loss. That is not a good situation to be in. Just like a business, if it cannot make a profit it will go bankrupt, so will you gobankrupt unless you can spend less than you take in. Debt » Debt is a double-edged sword. It cuts two ways ! » Responsible borrowers can pay for items they need with borrowed dollars » Others see large parts of their income consumed by debt with little to show for it 2 #%
  • 5. !"#$"#!% Reasons for Debt We Get Into Debt» To reward ourselves» To make big purchases» To meet day-to-day expenses%%» To go on vacation» To cover emergencies%%» To make others happy%%» Because we can 3 %When It Doesn’t Make Sense to Borrow » To go on vacation % % » To lend to others % % » To get married % % » To buy clothes % % » To gamble » To invest in a hot stock tip How long does it take for your debt to double? 4 Understanding Debt» Principal – The amount of money you borrow» Interest – The fee you’re charged for borrowing money from others» Credit – An amount of money made available for your control by a bank or other lender» Two categories - Secured and Unsecured debt 5 !%
  • 6. !"#$"#!% Determining What You Owe The first step towards managing and eliminating debt:CREDITOR BALANCE MONTHLY PAYMENTFudgeAppliances $1,100 $49.99ChokeElectronics $3,200 $167.00ShylockMotors $6,900 $450.00RipFurniture $4,200 $275.00DMXVisa $5,200 $300.00TotalOwed $20,600 $1,241.99 6 %Evaluate Your Situation You Have a Problem When» You fight over money» You are late paying your bills each month» You use credit for things you once paid cash for%%» You are making debt payments with rent money%%» Creditors are writing and calling 7 %Evaluate Your Situation You Have a Problem When» You transfer balances from one card to another%%» You are using pay day loans to meet living expenses%%» You cannot save any more» You are threatened with repossession, eviction, legal action» You count on a tax refund to pay debt 8 &%
  • 7. !"#$"#!% Track Causes of Debt LENDER AMOUNT REASON $750 TV“ONSALE!” Smears DepartmentStore ChokeElectronics $3200 Largescreenwas thethingtohave DMXVisa Cruise Toimpressmy EX! 9 Credit Cards» Can be used to purchase most everything%» Allow you to borrow up to a set limit» Allow you to pay a minimum amount each month%» Are easy to overuse, pick one with the right terms%» Allow you to inflate your income Credit and Debt walk hand in hand! Without credit you would have no debt. Protect your credit! 10 Kick the Credit Card HabitMoving forward:» Stick to one or two credit cards%%» Write down what you spend» Charge only what you can pay off monthly%%» Use for large purchases only in emergency 11 $%
  • 8. !"#$"#!% Borrow Wisely!TheGood TheBad TheUgly»CreditUnions »LifeInsurance »PawnShops»Banks »Retirement »CreditCards»Savings&Loans Plans »PaydayLoans»ServiceRelief »Friends& »HomeEquityAgencies FamilyLoans 12 Comparison Shopping Amount APR Length Monthly Total Total ofLoan ofLoan Payment Interest CostLoan $12,000 7.5% 3years $373 $1,438 $13,438ALoan $12,000 8.5% 3years $376 $1,541 $13,541BLoan $12,000 7.5% 4years $290 $1,927 $13,927CLoan $12,000 8.5% 4years $296 $2,197 $14,197D 13 Where To Begin to Reduce Debt?» Get out your checkbook, ATM slips and credit card statements» Figure out on what and where you spend, and how much is left at the end of the month» Create a spending plan» Use the spending plan to guide future spending, debt reduction, and saving 14 %
  • 9. !"#$"#!% Spending Plan Tips» Make budgeting a family affair%» Don’t spend more than you earn%» Pay yourself first – treat savings like a bill» Adjust as your income, expenses and goals change» Monitor your spending 15 Debt-to-Income Ratio How much of today’s purchasing power is going to debt?Divide total monthly debt by monthly income$1,500 in monthly debt payments divided by $5,000%monthly income = 0.30 or 30%< 15% - Things are under control%%15 – 20% - Watch it !21% or higher – Get professional help! 16 %When You Spend More Than You MakeYou must:» Increase income%%» Spend less» Adjust your goals» Negotiate with creditors%%» Change behavior 17 (%
  • 10. !"#$"#!% Every Bit Counts in Repaying Debt » Reduce Spending! – (Cut out expensive habits, pack lunch, carpool, use coupons, shop end of season, etc.) » Sell what you don’t need » Make extra income and apply it to debt % » Use tax refunds and bonuses to reduce debt » Every dollar not paid in interest is money in your pocket 18 Borrowing Money to Pay-Off Debt Consolidating Loans» Pros: – Rolls everything into one monthly payment % – Makes life easier» Cons: – It takes tough self-control – Creates a false sense of security % – Can have high fees 19 Getting Out From Under Debt1. Stop spending2. Collect and organize bills3. List creditors, balances and interest rates%%4. Develop a spending plan%%5. Have a plan for repayment%%6. Use extra cash to pay on debt 20 )%
  • 11. !"#$"#!% Three Repayment Choices» Pay the highest interest rate first%» Pay the lowest balance first%» Pay off the shortest term firstApply one-time or periodic additional payments%(e.g. bonus, tax refund) to debtApply extras to principal 21 What to Pay Off First Knock this one down first!!Lender Balance APR% Monthly PaymentUSAA $2000 12% $200Citibank $500 18% $50MBNA $5000 29% $300 22 Power Pay » Pay monthly minimum on lower rate debt % % » Apply extra cash to high interest debt until the balance is paid off » When a balance is paid off use that money to attack next highest rate debt » Apply Power Pay to home and car loans 23 *%
  • 12. !"#$"#!% Home Loans» One debt that can make sense» Take out a thirty year loan – but pay it off early%%» Don’t take out a mortgage just for tax reasons%%» Buy less house than you can afford!%%» Understand rates and terms» Determine how you will pay the% %mortgage if there is less income 24% % Mortgage Freedom%%%%%Here’s a way to pay a mortgage off early and save thousands of%dollars. For this example we use a 30-year $100,000 mortgage at%6% interest MONTHLY EXTRA PAYMENT* Payment $ 600 $ 100 Annually $ 7,200 $ 8,400 % % % Total interest paid $115,830 $76,400 % % % Years to maturity %30 years 21 years % % %Savings $39,430 *Record the additional principal amount on the “memo” line of your check % % %25 Car Loans» Buy used%%» Negotiate – Be ready to walk away % – Go with cash-in-hand» Shop around» Don’t go over a five year loan%%» Keep your car for the long term – Maintain your car! 26 +%
  • 13. !"#$"#!% When You Are Overwhelmed Service Members Credit Relief Act (SCRA) » 6% cap on interest rates » Invalidates, sale, foreclosure or seizure of property during military service and for 90 days after » Prevents you and dependents from eviction while on active duty % » The SCRA allows you to request a delay regarding a legal matter % » The SCRA provides protections against default judgments 27 BankruptcyChapter 7» Your debts may be erased» Can keep paying on secured debt (mortgage or a car loan) and keep the secured property» You could lose other propertyChapter 13» The court approves a payment plan» You have to repay portion of your debt (and possibly all)%» Are obligated to make payments for up to five years 28 Ways to Avoid Future Debt – Plan!EXAMPLE: John wants to take his family on a vacation. It’s years since%they’ve gone somewhere special. He would like to tie the vacation to his 10%year wedding anniversary four years from now. He’s looked into the costs,%including: travel, hotel, food and tickets. He expects the total cost to be close%to $4,000GOAL WHEN HOW HOWLONG SaveEach MUCH MonthTrip 4years $4,000 48months $83PlasmaTV April‘09 $1,200 6months $200 29 #,%
  • 14. !"#$"#!% Emergency FundCash to draw from when you need money fast%%» Ideally three to six months cash to cover expenses» Use strictly for emergencies» When you take it out – put it back! 30 Debt and Your Credit Report A report card of your personal attitude % %towards borrowing and repaying debt » Your credit report contains: – Personal information % – Payment history – All accounts in your name & types of accounts % – Amounts owed and the proportion to credit limits % – Length of credit history % – Inquiries – Public records 31 Who Sees Credit Report/Scores » An “index of responsibility” – Lenders, Credit Card Issuers % – Employers – Apartment/Utilities/Cell phones % – Insurance Companies % – Banks – Security Clearances – Indebtedness of Military Personnel – Separation from the military – loss of career 32 ##%
  • 15. !"#$"#!% Credit Score Bands» 760 - 850 Excellent% %» 700 – 759 Very Good% %» 660 – 699 Good% %» 620 – 659 Fair% %» 580 – 619 Borderline% %» 500 – 579 Poor% %» 300 – 499 Unlikely to be approvedNote: 58% have a score of 700 or above%%%% %33 What a Difference a Few Points Make Fico Score % Rate % % % % 720 – 850 % % % %6.3 % % 700 – 719 % % % %6.5 % % 675 – 699 % % % %7.0 % % 620 – 674 % % % %8.2 % % 560 – 619 % % %12.0 % % 500 – 559 %13.0Difference between 720 and 620 can add 2% to your%loan cost or $2,000 per year on a mortgage of $100,000…. 620 - 619? 34 Errors on Your Credit Report» Certified Letter to the Bureau%%» Clearly Identify Item in Dispute» Send documents (copies) in Support of the Dispute%%» Request Correction/Deletion» Contact Lender/Provider re: Dispute» Request Copy of Correspondence Between Provider & Bureau 35 #!%
  • 16. !"#$"#!% Ways to Improve/Protect Your Credit» Pay your bills on or before payment due date%» Use credit only when absolutely necessary» Pay down revolving credit. Do not just switch balances to a new card. Limit the number of accounts you have» Do NOT make frequent requests for more credit» Communicate with your creditors if you are in jeopardy of missing payments» Check your report annually at www.annualcreditreport.com%» Resolve any issues on your credit report Beat the 30 day deadline! 36 Breaking the Cycle» Realize how you got there%» Borrow for the right reasons» Do not feed “wants” by financing%» Do not create new debt» Do not compete with the Joneses» Set goals and save for purchases to stay out of debt%» Always look for the Annual Percentage Rate (APR)%» Borrow from reputable lendersAlways remember the pain of repayment! 37 #&%
  • 17. Tricare
  • 18. Employment
  • 19. LEGAL
  • 20. Education
  • 21. Safety