Churches have limit their teaching on financial stewardship to tithes and offerings. Tithes are 10% of financial stewardship and offerings are part of the remaining 90%, but we should be Faithful Stewards of all our finances. Even though we are not dependent upon the world’s financial system, the more we know about how the world’s financial system works, the better we can make the world’s financial system work for us. The objective of this series is empower people to become better financial stewards by helping them understand how the world’s financial system works and how to apply that information to their lives.Last week we talked about “Credit.” We looked at “Credit Reports” and “Credit Scoring.” This week we are going to look at the subject of “Debt”.
“Credit” cards should be called “Debt” cards!
The Recession hashurt many people.But, many having problems today were already headed for in trouble before the recession hit.
Some people try to make a distinction between “Good Debt” and “Bad Debt.”
Having said that, let’s compare what most considered as “Good Debt” and “Bad Debt.”
Most of this falls into the category of what we call “Consumer Debt.”
More Accurately - “Debt cards”
Debit cards are my card of choice for those who have trouble controlling their credit card spending.Caveat: Don’t keep all your money in the checking account that is tied to the debit card.
Recession will produce changes in the credit card industry.Credit cards may become expensive even if paid-in-full monthly.
If you pay in full monthly – choose cards that have low or no annual fees.If you don’t pay monthly – choose cards with low interest rates.
Credit<br />Credit is your ability to borrow money or obtain goods by paying little or no money at the time of purchase. <br />Having “credit” is a good thing.<br />
debt<br /> Debt is your obligation to repay money borrowed or pay for goods obtained previously without paying for them in full.<br /> Debt should always be seen in a negative light.<br /> Not paying your debt on time and in full may damage your credit.<br />
Increase in sales<br /> Retailers and manufacturers discovered that they could increase sales by making easy credit available and giving it appealing names that conceal the reality of debt.<br />
No matter how you disguise it . . . .<br />Debt by any other name is still “Debt.”<br />Rent-To-Own<br />Automobile Leasing<br />Home Equity Loans<br />0% Interest<br />No Payments Til . . . <br />Pay-Day Advance<br />“Credit” Cards<br />
What THE BIBLE says . . .<br />Being in debt is not prohibited.<br />But, the Bible does not have one good thing to say about borrowing. <br />All references speak of debt in a negative context and most are in the form of warnings. <br />
why PEOPLE GET burdened by DEBT . . . .<br />THINGS BEYOND OUR CONTROL<br />THINGS UNDER OUR CONTROL<br />
No such thing as “Good debt”<br /> There is debt that may be “Necessary” for most people to acquire things we consider necessary or desirable (“Necessary Debt”).<br /> But all debt (even Necessary Debt) should be seen in a negative light.<br />
“Good debt”<br /> What we consider to be “Good Debt” is debt that returns something of long term value (e.g., a higher education or home).<br />
“bad debt”<br />“Bad Debt” is debt incurred to acquire things of a “short-term value.” <br />It “feel good” for a season. <br />Has no long-term value. <br />You really can’t afford it. <br />Don’t really need it.<br />
DEBT MENTALITY<br /> The Greatest Enemy of faithful stewardship is consumer debt.<br />Raising your standard of living by incurring consumer debt may feel good for a period of time - but the burden of accumulated consumer debt eventually becomes overwhelming.<br />
for example . . . .<br />If you accumulate $200 per month on credit cards with a 15% interest rate,<br />In one year you will owe about<br />$ 2,600<br />In two years you will owe about<br />$ 5,600<br />In three years you will owe about<br />$ 9,000<br />In four years you will owe about<br />$13,000<br />
SMART CARDS<br /><ul><li>A smart card, chip card or integrated circuit card (ICC) has embedded integrated circuits which can process data.
They store personal information and are used for identification, authentication and data storage.
They are a flexible and secure way to transact business with minimal human involvement.
May be “loaded” with a certain dollar value that can then be spent at Point Of Sale terminals.</li></li></ul><li>Charge cards<br />Must be paid in full every month (AMEX).<br /><ul><li>Provide the convenience of not having to pay cash for purchases, but balance may not be carried over month-to-month and must be paid in full each month.
Most store cards were originally Charge Cards.</li></li></ul><li>Debit cards<br /><ul><li>Allow access to your checking account at automated teller machines (ATMs) and point of sale (POS) terminals.
Amounts are deducted directly from your checking account.
Unlike a charge card, you must have the funds on deposit in your account.</li></li></ul><li>The ones that causes problems are “Credit Cards.”<br />
Revolving loans<br /><ul><li>Credit Cards offer a “revolving loan account” with a credit limit.
If not paid-in-full within a “grace period,” interest is charged on the unpaid balance and “rolled over” to the next month.</li></li></ul><li>Trap for the unwary<br /><ul><li>Undisciplined users are apt to accumulate debts which they can’t pay.
Young users (with limited credit history and income) are charged higher interest rates.
They are expensive if not paid-in-full monthly.</li></li></ul><li>Fees, fees and more fees<br />“Interest rate” -- what you pay for using the money - often 17% - 21% (after introductory “teaser rate”).<br />“Over-the-Limit” fees, charged whenever you exceed your credit limit.<br />“Late payment” fees.<br />“Transaction” fees – Cash Advances.<br />Other miscellaneous fees - read the fine print!!!<br />
do’s . . . <br />Consider a debit card or pre-paid card.<br />Look for a card with no annual fee and low interest rates.<br />Know your card’s hidden fees.<br />Pay on time - all the time!<br />Look for cards that offer premiums.<br />Pay-In-Full Monthly.<br />If you can’t pay in full, always pay more than the minimum each month.<br />
don’ts . . .<br />Don’t get many credit cards.<br />Don’t use them for cash advances.<br />Don’t use them to pay for basics (rent, groceries, etc) unless paid in full monthly.<br />Don’t let issuer increase you credit limit.<br />Don’t charge more than you can pay off in a month. If you do, have and stick to a plan to pay it off quickly.<br />
Paying a Credit Card bill<br />Credit card bills are not considered paid until the company credits payment to your account. <br />To ensure payment is credited to the account before it is due and that there are no late fees:<br />Mail payments 7-10 days before the due date.<br />Make electronic payment 2-3 days before the due date<br />
Credit Card registers<br />Make a credit card register by cutting a receipt to wrap around your credit card.<br />Record each purchase or cash advance to the credit card, just as you would a check in a check register.<br />Keep a running balance of what is charged on your credit card each month. Do not over spend your budget.<br />Check your record against your statement.<br />
Selecting and Using a Credit Card<br />Shop-around! Study the details of the application before signing. Look for the fees charged including annual fee.<br />Understand the details of the introductory offers and how long they last.<br />Know what constitutes a late payment and the amount of penalties charged.<br />
SECURING UNSECURED DEBT<br /> If you have sufficient equity in your home, it may be tempting to refinance high interest consumer debt with a second mortgage, to take advantage of a lower interest rate and spread payment over a longer period of time.<br /> Think twice before doing so!<br />
Memories are short<br />Instead of learning a lesson, many people who do so begin to accumulate new credit card debt almost immediately after refinancing their old balance.<br />Without even realizing it is happening, in no time, they have replaced their old credit card balances with new ones, plus the second mortgage.<br />
Exposes exempt asset<br />Credit card companies can’t collect your credit card debt out of your homestead.<br />In Florida, your homestead is exempt from the claims of most creditors – other that the mortgage holder.<br />Refinancing has the effect of exposing your otherwise exempt homestead to satisfy debts otherwise not be able to be satisfied out of your homestead. <br />
Florida Exemptions<br />Assets That Are Exempt From Forced Sale Vary From State-To-State<br />
Florida exemptions<br />Homestead<br />Life Insurance (including cash values)<br />Alimony and Child Support Needed For Support<br />Damages for hazardous occupation Employee injuries<br />Property of Business Partnerships<br />ERISA Qualified and Government Pensions<br />Certain Public Benefits<br />Up To $1,000 in Personal Property & Health Aids<br />Motor Vehicle up to $1,000.<br />Wages of Head of Household<br />
Exempt Homestead<br />In Florida, the homestead is exempt from forced sale without regard to value.<br />Homestead includes real or personal property including mobile or modular home (without limit of value). <br />The land cannot exceed ½ acre in municipality or 160 contiguous acres elsewhere.<br />
Exempt INSURANCE<br />Annuity contract proceeds (not including lottery winnings).<br />Death benefits payable to specific beneficiary (not the bankrupt deceased’s estate).<br />Disability or illness benefits.<br />Life insurance cash surrender value.<br />
Power point<br />If your out-go is more than your in-come, your up-keep will lead to your down-fall!<br />